Coronavirus — Potential Availability of Insurance for Business LossesMarch 16, 2020
There are many unknowns regarding the novel coronavirus. But what is clear is that the virus is adversely impacting businesses, large and small, in unprecedented ways.
Every day, numerous events are being canceled or postponed -- sporting events, concerts, Broadway shows, conferences and meetings -- over fears about spreading the virus. These cancelations and postponements impact many businesses that depend upon these events, from airlines and hotels, to local food and souvenir vendors. In addition, many businesses are suspending their operations for a period of time in an effort to combat the spread of the coronavirus.
Companies are increasingly looking to their existing insurance policies to find out whether those policies might help to minimize the financial losses that result from the virus.
Some policies contain virus, pandemic or communicable disease exclusions, which would likely exclude coverage for losses related to the coronavirus. However, in the absence of such an exclusion, one or more of the following types of insurance coverages might apply:
Business Interruption Coverage – “Business income” or “business interruption” coverage is generally included in a company’s commercial property insurance policy. This type of insurance typically responds when a covered risk causes a suspension or slowdown of business operations, covering lost profits and/or associated extra expenses. In a standard policy, coverage only applies where there exists “direct physical loss or damage” to covered property. However, not every policy is the same, and it is important for businesses to examine their policies to determine if the coronavirus might trigger business interruption coverage.
Civil Authority Coverage – Most business interruption policies also contain a form of civil authority coverage, which covers business income losses when a governmental order or directive prevents access to a property. This might happen if, for example, the government imposes a mandatory quarantine or exclusion order that blocks access to a property in which an outbreak of the virus has occurred.
Contingent Business Interruption Coverage – Companies that are dependent on the continuing operations of certain customers or suppliers should check whether their policy contains “contingent business interruption” coverage, which might cover business losses caused by a suspension of a customer’s or supplier’s operations.
These types of coverages commonly have waiting periods (e.g. 72 hours) before coverage can be triggered.
Event Cancelation Coverage – This type of insurance is designed to reimburse an event organizer for loss of profits or reimbursement of refunds if an event is unexpectedly canceled or postponed as a result of causes that are covered by the policy. The scope of coverage can vary significantly from policy to policy, and policies might contain provisions that expressly cover or exclude events canceled due to a virus or quarantine. Coverage would not apply if an event organizer voluntarily cancels the event due to fear of the coronavirus in the community. Rather, coverage typically applies if the cancelation or postponement is unavoidable, such as in response to an official ban on large public gatherings. Most policies also obligate the event organizer to use its best efforts to rearrange the event in order to mitigate losses. It is therefore vital for businesses to carefully review the language of their policy.
Takeaways – Whether coverage exists will depend on several factors, including the cause of loss, whether there is direct physical loss or damage, whether the policy contains a communicable disease exclusion, and whether the operations may have been suspended and/or an event canceled voluntarily. The determination of coverage depends on the particular circumstances and the precise terms of the actual insurance policy. A close reading of the insurance policy is essential.
A copy of the article appeared in Real Estate Weekly on March 19, 2020 titled "Does your insurance cover coronavirus business losses?" and can be seen here.
Herrick’s Insurance Group is experienced in reviewing and analyzing such policies and coverages. For more information on this and other insurance matters, please contact:
© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.