Statistics around the novel coronavirus (COVID-19) crisis are changing daily and dramatically, and the ripple effects are being felt worldwide. As international travel continues to be curtailed and borders are being shut, international and domestic markets have plummeted, and industry and business operations around the world are feeling the impact.
Affected businesses should review their business interruption insurance. This coverage is intended to provide protection against losses a company experiences when it is unable to continue normal business operations and functions due to a covered hazard or peril. It may also cover associated extra expenses that a company incurs. However, as the global community experiences infectious and communicable diseases more frequently, insurers are starting to exclude coverage for related losses. It is important for businesses to familiarize themselves with all potential coverage.
On February 6, 2020, our office issued a client alert that discussed general insurance considerations related to the novel coronavirus.
This alert addresses five specific considerations related to business interruption coverage.
1. Assess the extent and impact of any interruption to your business.
The extent of any business interruption could impact your coverage. Has your business had a slowdown in business operations or a complete cessation of business? Was the business interruption necessary or did it flow from a discretionary business decision. Was the business interruption yours, or somewhere else in your company’s supply chain? These facts may affect your coverage.
2. Has your company suffered a “direct physical loss”?
Property policies may require a “direct physical loss” to covered property. Where a business has simply been closed due to a mandatory or voluntary closure, an insurer might take the position that the policyholder has not suffered a direct physical loss. But if property has become contaminated and uninhabitable, there could be a basis to argue that a direct physical loss has occurred.
3. Was your business interruption caused by civil or military authority?
Some policies specifically cover losses due to an act of “civil authority.” If an order of civil or military authority has prohibited access to insured premises and that denial of access has caused a loss of business income, your insurance may cover those losses.
4. Does your policy have “contingent business interruption” coverage?
This coverage addresses interruptions that result from damage to the property of others, such as an insured’s suppliers or purchasers. For policyholders that are dependent on the continuing operations of integrated suppliers and purchasers, this type of coverage could prove to be quite valuable.
5. Consider specialized business interruption coverage for future events.
Following a number of infectious and communicable disease outbreaks, and the uncertainty around whether traditional property policies protect an insured in those instances, there are indications that the insurance industry is developing a line of coverage specifically targeting these types of health crises. If your company is particularly vulnerable, it may be worth considering this type of specialized coverage. Also, when the insurance industry introduces specialized policies, this could indicate that insurers might attempt to exclude such losses from more traditional policies, so be aware of any exclusions that might be introduced at renewal time.
As always, the policy wording is critical. Insurers and policyholders litigate the boundaries of coverage provided, based on the wording in the insurance policies. What seems cut and dried may not be, so it is important to obtain professional advice before making a final determination as to whether coverage might exist.