As businesses across the country lose money due to government-ordered shutdowns, many are asking whether these losses are covered by their business interruption coverage.
While it’s your fiduciary responsibility as their agent or broker to report the loss, it’s ultimately up to the carrier to determine whether there will be coverage. But most business interruption policies require direct physical loss to trigger coverage.
There are some manuscript coverage forms—mostly on large accounts—with endorsements that intend to cover communicable and infectious diseases, but these are rare, and they are typically subject to a policy sublimit.
The first coronavirus-related coverage suit was filed in mid-March by a New Orleans restaurant seeking business interruption coverage for income losses attributable to a government-ordered shutdown. So this issue could end up being decided by the courts.
Some of you might be comparing the current situation to the business interruption claims filed by businesses adjacent to New York’s World Trade Center following the Sept. 11, 2001, terrorist attacks. But there is a key difference: There was physical damage to an adjacent property that would have been covered by businesses’ own policies.
Similarly, contingent business interruption coverage for supply chain disruption also depends on whether the cause of loss was covered by the business owners’ own insurance policies. For example, if a company in Michigan is forced to shut down because one of its suppliers was damaged by the recent earthquake in Salt Lake City, Utah, it probably wouldn’t be covered unless that Michigan-based business has earthquake insurance.
Some advice for those renewing business interruption coverage at this critical time:
- Begin work on renewals as early as you can—underwriters were already working overtime, and now many are working remotely, so it will take longer to get quotes and finalize coverage.
- If premium is an issue for your clients, find a way to alter coverage to make it more affordable: either increase deductibles or reduce business income coverage due to lower sales projections.
- Expect to have virus and bacteria clarification exclusions included on property coverage renewals.
The commercial property insurance market was already firming before the coronavirus hit, so if insurers are required to pay substantial claims related to business interruption, it could cause further tightening. That said, if your policyholders were already looking at a rate increase on their 2020 renewals, and they have been negatively impacted by a COVID-19 closure, consider asking insurers for extended payment terms. In fact, several states already have imposed moratoriums on cancellations or non-renewals related to COVID-19. Some are also adding two-month grace periods for late premium payments.