Virtually all businesses are being affected by the Coronavirus pandemic. Unfortunately, not only do 66% of small businesses lack business interruption coverage, but losses due to virus and infectious diseases are often excluded from insurance policies.
As such, if you have business insurance, it’s important to do two things:
- Read your policies for relevant coverage
- Have a strategy for documenting any lost business
Number one above can be made simpler by searching for specific virus-related insurance terms in your policies. These terms are listed below and knowing what to look for will help you more easily discover what you need to know.
Number two is important because the outcome of virus-related insurance claims will most likely be decided by the courts. In the short-term you should document any lost business, and file a claim with your insurance company. This puts the insurance company on notice and reserves your rights if things change in the future.
5 Coronavirus Insurance Tips For Business Interruption
Insurance coverage for business interruption and/or business income is triggered by direct physical loss of or damage to property at a described premises. However, the suspension of business operations due to Coronavirus has mostly occurred out of public safety concerns from governmental authority.
As such, the key to understanding your policies is to look for a connection between “business interruption” and/or “business income”, and physical damage and the peril (specific cause of loss), such as virus or infectious disease, in your insurance policy.
The following coverage terms may be found in your:
- Package policy
- Business owner’s policy (BOP)
- Standalone property policy
A package policy or a BOP is written for a broad class of risks. It includes property and general liability (GL) coverages, usually starting at $1,000,000 limits per occurrence as well as other coverages with sub-limits. A monoline property policy includes only 1st party property insurance and may be customized to address unique exposures particular to your business.
Business interruption, business income and dependent business income coverage are 1st party property coverages. These coverages are intended to protect your business against losses sustained as a result of suspended operations due to direct physical loss of or damage to property you own, or that you rely on, and need to do business.
For example, if your business had a fire and suffered physical damage and had to close for a period of time during restoration your property insurance would pay for physical damage and lost business income.
Depending on the language in your policies, the terms viruses, bacteria, communicable diseases that are related to Coronavirus1 may be excluded or not be the cause of actual property damage.
As such, it’s important to find the specific language below or ask your broker to look for the following insurance terms and their meanings.
These terms may help you more quickly determine if you have coverage for Coronavirus-related liability, business interruption or lost business income.
1) Infectious or Communicable Disease
The terms “infectious disease” and/or “communicable disease” or related event may be included in your policy. A “communicable disease event” is a cause of loss leading to business disruption due to a public health authority ordering a location be evacuated, disinfected, decontaminated or destroyed due to an outbreak of a communicable disease at a covered location.
A “communicable disease” may be a bacteria, virus or other disease that is transmitted directly or indirectly from humans or animals to humans.
Business may be interrupted in various ways. In addition to restaurants not being able to open, landlords may be unable to collect rent from tenants who have been forced to close by a governmental authority.
However, if you have coverage for a communicable disease event, your insurance company may reimburse you for lost business income or business interruption. If you are a landlord, you may want to draft your commercial lease to require business interruption from communicable disease in the future.
If your business imports or exports products to or from a country that has been quarantined due to the Coronavirus pandemic, you may check your inland marine insurance to see if there is, or is not, a communicable disease exclusion.
2) Microorganism
A microorganism may be any type of microscopic organism including fungus, wet or dry rot, virus, algae, bacteria or by product of these. Similar to the above, your policy language would reference whether microorganisms are covered or excluded in your policy.
If the term “microorganism” appears in your policy, you may have limited coverage, or a sub-limit, below the primary coverage limits listed in the declarations. A sub-limit may be defined as a number of days, such as 30 days or business income, or it may be a set dollar amount, such as $25,000.
3) Virus, Bacteria or Fungi (or Fungus)
If your insurance policy references the term “virus” it may have dual meanings referring to either or both malicious computer code or organic viruses (such as Coronavirus). The terms bacteria and fungi may also be lumped together in insurance policy language referring to virus.
However, it is important to note that bacteria and virus are different things. A virus requires a host whereas bacteria may live independently. If your insurance policy excludes bacteria, it may not exclude virus, and vice-versa.
A fungus may refer to a group of molds, mildew, toxins, spores, scents or by-products that are released by fungi.
4) Leasehold Interest Coverage
National tenants who lease space from commercial real estate owners may seek rent concessions, or claim they cannot pay their rent, due to the Coronavirus outbreak. If you are a tenant in a commercial building, you may want to look for lessee’s leasehold interest coverage, however, the lease you hold would have had to have been canceled for a covered loss under your insurance policy, and according to the terms of the lease.
If you are a landlord and are not receiving rent payments, it may be necessary for you to cancel leases. Lessor’s leasehold interest coverage provides insurance coverage for lost rent, including taxes, insurance, janitorial, or other services that a landlord may charge, such as in a net lease, to a tenant for that space.
It’s important to follow the terms of your commercial lease when canceling leases with delinquent tenants because insurance policy language may void coverage for leases that are broken in ways not pursuant to the terms of the lease.
5) Covered Crisis Event or Crisis Management Coverage
With the government shutting down businesses, it may be possible to file a claim for lost business income you sustain due to a government suspension of your operations because of COVID 19.
This may be referred to as “civil authority” or a “covered crisis” in your policy and is often a time-element coverage extension in a property policy.
Crisis event or civil authority coverage could have a sub-limit to your primary limits with a dollar amount or a time limit ($100,000 limit or 60 days, for example). Coverage may include business income and extra expense for a covered crisis event.
A “covered crisis event” may include violent acts, premises contamination or contaminated food. The coverage may also include language referring to orders of premises closure by public health authorities.
Coronavirus Insurance Terms Summary
The first rule of insurance is to read your policy… If your business suffers a loss due to COVID-19, the terms above may be clues to help you more quickly decypher any Coronavirus-related claims coverage you may have.
Regardless of the outcome when filing a claim you will need to document any losses for your insurance adjuster. You can help the adjuster help you by keeping detailed records of the following data related to your business:
- Lost business income, rents and/or sales
- Historical revenues to establish the baseline
- Extra expenses incurred as a result of the Coronavirus pandemic
- Historical profit and loss statements showing expense history
Also, it’s important to note that even if one of the above terms or perils is excluded as a cause of loss in your policy, if the excluded terms are the proximate cause a covered cause of loss, then your insurance company may pay for that portion of the loss.
Footnotes
- Photo of microbiologist by Governor Tom Wolf. Pennsylvania Commonwealth microbiologist Kerry Pollard performs a manual extraction of the coronavirus inside the extraction lab at the Pennsylvania Department of Health Bureau of Laboratories on Friday, March 6, 2020. https://flickr.com/photos/governortomwolf/49628500837/
