The past couple weeks have reminded us insurance veterans of the weeks after 9/11. Following those tragic events, insurance professionals around the globe dove into insurance forms to see to if their clients’ policies had coverage for Terrorism and for the lost revenue/extra expenses incurred by the economic showdown in the months that followed.
Now in 2020 insurance professionals are asking similar questions about the COVID-19 pandemic.
- Can insureds file a Business Income (BI) or a Contingent Business Income (CBI) claim if they have to shut down operations due to the virus?
- Do insureds have Civil Authority coverage if they are ordered to shut down by the state or federal authorities for “social distancing” purposes?
- Is there any “Event Cancelation” coverage within my Package or Businessowner policy?
- Will Workers’ Compensation cover infected employees? Or are we just going to like the comp carriers fight it out with the health insurance carriers?
Business Income & Contingent Business Income
Like the property forms in 2001, most BI and CBI policy forms have two requirements: 1. a covered cause of loss and 2. “direct physical damage or loss to physical property”.
Therefore, the virus would need to be present at the insured premises to be considered physical damage to the property of an insured, or that of the insured’s customer or supplier in the case of CBI.
Even if direct physical damage hurdle is met, most BI & CBI forms are either “basic” or “broad” form, meaning that only named or specified perils are covered such as fire, wind, busted pipes, etc. Diseases or viruses would not be a named or specified peril. The insureds that have a “special” form within a Businessowners policy will most likely find a disease or contaminants exclusion broad enough that the presence of a virus would not be “covered cause of loss”.
Civil Authority Business Income Coverage
There is no coverage for voluntarily shutting down operations or preventing the spread of the virus by “social distancing”. However, what happens if government agencies respond to this pandemic by ordering businesses to shut down?
Here again, most Civil Authority forms include language like such as “resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property”.
Here again, we need a “Covered Cause of Loss” to trigger Civil Authority coverage.
Event Cancelation Coverage
Most property forms within a Package or Businessowners policy do not provide event cancelation coverage. The small number of property forms on a broadening endorsement will provide narrow coverage triggers and very low coverage sublimit.
If a standalone Event Cancelation policy is purchased, it is important to read the policy forms. Some policies will exclude diseases, some need the event registration to be beyond 60 days, and all require the event to be cancelled not just the fear of going.
It would be reasonable to assume that first responders and healthcare workers will be covered by workers’ compensation if they treat those that have the virus. However, healthcare workers not directly treating virus patients may not. It will be interesting to see if health care insurers as their costs rise, subrogate losses to workers’ compensation providers.
Besides reviewing all insurance policies with your clients, you should have them start tracking of any lost revenue and costs associated with this pandemic. If the situation worsens, the State or Congress may order special low or no interest SBA loans. Such loans may require a claim denial from an insurance carrier.
In addition, policyholders should report claims related to COVID-19 to their carriers right away. The insurance carrier’s will make the final determination on whether or not there is coverage for this pandemic.
The above opinion is from Michael G. O’Brien, CPCU, CRM, CIC, Risk Advisor with Deland, Gibson Insurance Associates, Inc. Please contact us at Deland, Gibson with any questions.