The coronavirus (COVID-19) pandemic is having major impacts on public health and safety around the world. It’s also causing problems and concerns for businesses. In some cases, companies have been forced to close or drastically change how they operate, which can create insurance issues. Business interruptions, supply chain issues, and liability concerns can all raise questions around insurance coverage and claims.
What follows is some information on what many typical insurance policies often do and do not cover in relation to COVID-19. Companies should understand how COVID-19 can impact their insurance policies, review their existing coverage, and determine what actions to take to stem losses. As always, contact your broker if you have questions or concerns about your specific policy. At Farris Insurance, we’re here to assist you in this difficult time.
Business Interruption Insurance
Business Interruption Insurance helps with financial losses any time a company is forced to operate at reduced capacity or suspend operations due to natural disaster or a man-made crisis. That typically includes fires, natural disasters, hurricanes, tornadoes, and floods. Business interruption insurance can help compensate businesses for lost revenue, rent and lease payments, mortgage payments, other loan payments, taxes, and employee wages. It can also cover the cost of having to relocate temporarily or permanently to new premises. It is typically a part of property insurance policies.
However, business interruption insurance usually only covers a direct physical loss or damage, not business lost to a disease such as COVID-19. There are a few cases where COVID-19 could contaminate physical objects like HVAC systems or assembly lines, which in turn would force businesses to cease operations. In these scenarios, business interruption insurance could provide some protection, but the policy wording is important when it comes to covering claims. There may be some coverage available if businesses have “civil authority” clauses in their policy coverage. When the actions of a governmental entity prevent a business from operating, that often triggers civil authority coverage. Not every policy includes this type of coverage and there are usually other limits. As a policyholder, review your exclusions and endorsements with your broker to ensure you have the coverage you need.
Since business interruption insurance covers revenue your company would have earned had the disaster not occurred, it is important to maintain detailed, comprehensive financial records.
Supply Chain Issues & Contingent Business Interruption
Contingent Business Interruption insurance (CBI) can cover disruptions by a third party. CBI is an optional extension of business interruption insurance. It reimburses you for lost profits and extra expenses if problems with a customer or supplier interrupt your business. However, just like with business interruption insurance, property damage usually triggers CBI. In this case, the damage is to the third party supplier or customer. Usually, this means a plant, property, or equipment or a supplier has been physically damaged, interrupting your supply chain. In some cases, COVID-19 contamination may count as property damage, depending on the policy language and insurer. Policyholders should also review their policy language to ensure their policy includes suppliers.
The spread of COVID-19 raises liability questions, particularly if your customers, guests or employees claim they became sick due to a business’s negligence. Commercial liability insurance, or general liability insurance, protects your business from financial loss if you are found liable for property damage or personal injury caused by your services, business operations or employees. It can protect you from costs associated with bodily injuries, damage to third-party property, personal injuries, medical expenses, litigation and more. When it comes to COVID-19, general liability policies should provide coverage and allow you to defend claims. In order for a claim to be valid, the claimant would have to allege the virus was contracted due to the insured’s negligence and detail how, when and where they got sick.
Directors and Officers (D&O) Insurance
Shareholders and other stakeholders could sue a business for failing to respond appropriately to COVID-19 concerns. Stakeholders may claim that management failed to develop adequate contingency plans or detail how COVID-19 could impact the company’s financial performance. Most D&O policies exclude coverage for bodily injuries but may offer some protection depending on the specific allegations. It’s important for businesses to review the scope of their D&O policies and confirm coverage inent of an incident.
Workers’ Compensation Insurance
If an employee believes they contracted COVID-19 at work, workers’ compensation questions could come up. Most state statutes only pay out benefits if the disease in question is occupational in nature. Workers’ compensation policies generally exclude communicable and contagious diseases. However, coverage may be triggered if the illness was due to or in the course of the worker’s employment. In general, insurers examine these scenarios on a case-by-case basis, but could include:
- A health care worker who contracts COVID-19 at the hospital where they work.
- An airline employee who contracts COVID-19 from a passenger.
- A hospitality worker who contracts COVID-19 from a large event where they worked.
Other Types of Insurance
Other types of insurance that could be relevant to a COVID-19 related claim include event cancellation policies and travel insurance. Richard P. Lewis, an insurance partner at the Reed Smith LLP law firm discussed these issues and others in a recent podcast.
COVID-19: Be Prepared
When it comes to COVID-19, policyholders should review their current coverage and prepare for potential claims, however unlikely:
- Audit your existing insurance policies to identify potential gaps in coverage.
- Review and modify your existing contingency plans and estimate the potential impact of a long-term closure.
- Identify equipment, services, and third parties that are critical for your continued operation.
- Keep good accounting records, payroll records, and other important documents for use in filing a potential claim
- Have a process in place for responding to a loss:
- Detail how the loss occurred and the impact the loss had on your operations
- Track all losses and expenses associated with the claim
- Detail how the claim could impact third parties, like suppliers and consumers
Insurers will handle each business and claims differently based on the insurance coverage you have in place. Review your policies and contact your broker if you need to make changes or ask questions. At Farris Insurance, we’re here for you. Please stay safe in the meantime.