Coronavirus and Business Interruption Insurance

Will business interruption insurance provide coverage for coronavirus losses? Sadly, despite the situation the nation now finds itself in, in most cases the answer is “no.” Because this type of insurance is typically part of a commercial property policy, the insured party is indemnified only against losses from direct physical damage caused by a covered event. This is so even if the policy contains coverage for losses caused by forced closure of property by civil authority, for example closure resulting from physical damage to adjacent or nearby property.

Viruses and other diseases and epidemics usually are often excluded unless there is a specific endorsement. Even if there is a specific endorsement, the specific language in the clause will govern whether the event is covered.

Direct physical damage caused by the covered event is the standard threshold. Businesses that have been closed as part of a mandatory or voluntary closure due to the coronavirus probably don’t meet this threshold.

Often, losses arise from more than one cause, some covered and others not covered. In these instances, determination of coverage will be decided on the basis of the language in the policy. If there is an unresolved conflict about coverage and the case goes to litigation, the laws of the jurisdiction will prevail.

The past few decades have seen a number of scenarios where big losses arose from health crises. The insurance industry responded by developing specialized products to address them. Two industries that are especially prone to losses stemming from health crises such as the coronavirus are health care and hospitality (e.g., hotels, airports, shopping centers, restaurants, theaters and gyms). Among the products created to address these losses are (1) specialized coverage arising from a business shutdown without proof of physical loss to property and (2) exclusions written for specific events. The coronavirus will probably result in another group of specialized policies.

This is a stressful time for businesses in many industries. There will be big losses for some, magnified by the fact their business continuity insurance didn’t provide the coverage they thought it would. The most important thing is getting a handle on the company’s specific situation, planning for mitigating its losses and developing a strategic plan for moving forward. With that in mind, here are the most important things they can do:

1. Examine their business interruption policy to clarify what is/is not covered.
2. Assess whether the business faces new risks and exposures.
3. Analyze whether the benefits of adding specialized exclusions are worth the cost.
4. Determine how their crisis communication plan is working.
5. Meet with their team of expert advisors (accounting, banking, legal, insurance) to review cash flow and other projections so they can get a true picture of what needs to be done to move forward.
6. Take this information into consideration and develop a strategic plan for moving ahead.