Risk and crisis planning is a multifaceted determination. One part of such an approach with regard to COVID-19 specifically, and other communicable diseases or illnesses generally, is analysis of a company’s insurance coverage. Though there remains lack of clarity as to the impact of COVID-19 on a macroeconomic basis to the U.S. economy as a whole, the impact on a microeconomic basis to a specific business can certainly be significant. For many companies, illness of a large percentage of employees or of a certain few key employees can be extraordinarily disruptive to the business operations and catastrophic to its revenues. Similarly, even if the employees of the business are healthy, illness of a large percentage of employees of another company in the supply chain can lead to the same result. If either of those happen, is there insurance coverage for the loss?
With the many considerations that exist with respect to potential impact on a business of a communicable disease such as COVID-19, SARS or other such illnesses, a significant question is what happens if the business must shut down for several weeks or longer? If the business is not in operation, from where will the lost revenue be derived? If the business revenues are interrupted, is that loss covered by insurance? One might conclude there is coverage if language in the insurance policy includes loss for “business interruption”; however, the answer is not necessarily straightforward. It is dependent on the policy language and interpretation of that language, typically under a State’s law.
Business interruption coverage can be added to a property/casualty policy or comprehensive insurance policy, typically referred to as an “add-on” or “rider” to the policy. Many insurance policies do not cover business interruption arising from widespread communicable disease, even though there unquestionably may be “business interruption” language in the policy, because there was no physical loss or damage to covered property. In contrast, some policies do include business interruption caused by communicable disease as a covered loss, though there may be lower limits of coverage provided. Even if communicable disease language is not included in the policy, there may still be an argument supporting coverage for resulting business interruption loss depending on the type of policy issued and the State under whose laws the policy will be interpreted. Different states do not necessarily interpret identical insurance policy language the same way.
A “named peril” policy is issued to cover property damage and resulting business interruption losses that are caused by specific perils listed in the policy. Unless a Coronavirus-like disease is listed, there likely will not be coverage under such policy for that loss. In contrast, “all risk” policies are issued to cover property damage and resulting business interruption losses unless the cause is excluded or limited in the policy. Under an “all risk” policy, there may be coverage if determination is made that a physical loss occurred at the covered property and there is no exclusion or limitation. Key words to look for might be in an exclusion such as “loss due to virus or bacteria”. If such exclusion language exists, even if the policy is an all-risk policy, there may likely be no coverage. Some insurance carriers offer a coverage extension that includes losses caused by communicable diseases. Again, though, there may be conditions lowering the limits of coverage to be paid or limiting the actual insurance coverage even if the language exists.
As a critical component to a company’s planning for business impact which could result from COVID-19, review of your insurance coverage is necessary to determine: 1) potential business risk you have; and 2) whether you are, indeed, covered for the business risks which you intended to be covered arising from widespread employees’ sickness or supply-chain disruption due to communicable disease. Your policy will state what is covered, and excluded, and how much indemnity exists. You may also want to speak with your insurance broker, insurance agent, risk manager, or in-house or outside counsel. As part of that process of determining whether there is coverage for business interruption arising from the effects of COVID-19, you can also determine whether additional losses other than “business interruption” may be covered, such as clean-up of property that was contaminated and workers’ compensation for employees who claim that work-exposure led to their illness.
If you have any questions regarding analysis of your company’s insurance policy and any exclusions that may exist, please contact Marc Dedman.
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