Will COVID-19 be covered by Business Interruption Insurance?

Posted on Mar 16, 2020

As businesses are suffering due to the COVID-19 outbreak, many are wondering will my insurance coverage help to cushion the blow to revenue loss?

While many business insurance policies cover business interruptions, a significant number of the policies exclude compensation for communicable disease outbreaks. This was a change that many insurers made after the SARS (Severe Acute Respiratory Syndrome) outbreak of 2003.

Business Interruption Insurance is typically apart of a larger overall compensation coverage policy, to cover loss of business due to natural disaster or fire. Depending on the type of policy you have, your coverage could be limited to specific types of interruptions and exclusions.

Following the SARS outbreak in 2003, insurance companies updated many of their policies to exclude certain types of disasters – specifically communicable diseases. The only coverage that pays for such losses are specifically pre-negotiated.

For businesses that have interruption insurance, the threshold for recovery generally depends on a series of factors:

> The property has to sustain damage (e.g., a lightning strike)
> The property must be insured (so renters might not be covered)
> The peril itself must be insured (not specifically excluded)
> The loss must be quantifiable

If all these conditions exist, coverage could pay out for the entire period of time it takes to restore the damaged property and put the company back in business.

Many existing business disruption coverage policies pay only for quantifiable physical losses like repairing replacement of damaged property and inventory. If the coronavirus disrupts business, there may be no physical damage to the organization.

Business will likely experience business slowdown, loss of revenue, disruption in supply chain or need to completely close for disinfection. Since none of these would be the result of physical damage, none would trigger a payout from a typical business disruption policy.

For those that remembered the SARS losses and were able to negotiable coverage for communicable disease outbreaks there still may be limitation on the amount of recovery and organization can receive. A trigger event may be required to begin the disruption coverable, such as a closure required to sanitize families and/or protect employees & consumers.

Organizations that carry communicable disease coverage and that are impacted by COVID-19 may still have policies that limit the amount of recovery to physical costs (cleanup) and exclude loss of revenue inflicted by the outbreak.

Specific, pre-negotiated terms that cover customer or supply chain losses would be needed, but may be cost-prohibitive to most businesses.

How to get coverage?

In order to get Communicable disease coverage (CBI) you will need to purchase “contingent business interruption coverage” that specifically includes loss of commerce caused by disease as well as other disasters. CBI could include loss of revenue due to disruptions from customers, the cost to repair or replace facilities or equipment, and costs to clean and sanitize.

Other areas that should be considered: disruption in supply chain, as your vendors are unable to supply you with the good that you need to continue operation losses due to proximity, for example: your revenue streams are driven by your close proximity to Disneyland. A shutdown of the proximal location will likely create major disruption in your revenue.

CBI could help keep things afloat under these circumstances.

What to look for in a CBI policy

Looks for business disruption coverage that specifically includes any types of disasters they may experience including communicable diseases. This may be referred to as Loss of Attraction, Communicable Diseases or Special Perils Business Interruption.

While these plans can be costly and are typically subject to a maximum payout they can be extremely beneficial in helping your business to survive such a devastating situation.

Work closely with your insurance broker or representative to look at all aspects of the policy, as well as all exclusions and all potential contingencies before making a final decision on the policy that best meets your company’s needs.

Planning for the future is key, but in the meantime as you are dealing with the current implications of the economic impact of COVID-19 outbreak the federal government is increasing the amount of small business loans available to help companies weather the storm.
CLICK HERE to learn more.

Contact your insurance carries and look through your existing policies to determine what type of coverage you have and what type you may be able to purchase for the future.

And if you are currently being impacted be sure to document all COVID-19 related business impacts incase you are able to make a reimbursement claim in the future.