Health and government officials are working to maintain the safety, security and health of the American people. Small businesses, who are a vital part of the American economy, are being encouraged to do their part in keeping not only their employees, but the business itself healthy. Small businesses are key to the economic recovery America will enjoy. However, the current economic disruption from the COVID-19 pandemic has led businesses and policymakers to ask whether business insurance policies should cover associated losses. Most businesses carry Commercial Property insurance, which frequently includes Business Income or Business Interruption coverage. In general, this additional coverage is there to replace lost income due to “covered causes.”
There’s no question that the novel Coronavirus is causing unexpected business losses. But, are the lost profits and other damages covered under these business policies?
Insurers are reluctant to cover business income losses in a pandemic, primarily because of the sheer scale of the loss. Insurance industry sources suggest that the cost of covering business income claims resulting from COVID19 could run as high as $290 billion monthly.
While insurers typically exclude coverage for losses due to viruses or bacteria … the final answer may not be as certain. Depending on the exact policy language, a policy review by an attorney or public adjuster may reveal an argument for coverage.
Some lawmakers are also exploring ways to shift some of the economic burden to business insurers.
- Some insurance trade groups are considering an option where businesses submit claims as if the losses were covered, and insurers pay claims from a government-funded pool. There is precedent for this approach in the National Flood Insurance Program.
- A state bill in New Jersey would require insurers retroactively to include virus transmission as a covered peril in BI policies. The bill also includes a provision that would allow liable insurers to petition the state for partial reimbursement collected from other insurers in New Jersey that do not offer BI coverage. This would potentially shift business losses attributable to COVID-19 to all insurers in the state.
- Massachusetts, New York, and Ohio have also introduced bills on BI coverage. Will this trend continue?
If you are a business owner and you carry commercial property insurance, the best advice is to promptly review your policies, notify insurers of claims, document losses, and consult qualified legal counsel or a public adjuster.
Resources: The National Law Review, Insurance Coverage in the Time of Coronavirus: Business Interruption Coverage May Require Creativity, March 18, 2020; Congressional Research Service, Business Interruption Insurance and COVID-19, March 31, 2020.