The Effects of Covid-19 on Insurance Coverage

By: Tom Johnson

The State of Emergency response to Covid-19 has had an enormous effect on all of our lives.  As the pandemic continues, loss of revenue has become the center of attention for business owners.  With business closure, shelter in place orders, and bleak economic forecast for the second quarter, the question whether Covid-19 related losses are covered under insurance policies has become an important one.

Most commercial property policies have business interruption insurance coverage for loss of income when damage to a business occurs, resulting in a slowdown of operations or a complete halt of a business altogether.  Most coverages apply during the time it requires to repair or replace the damaged property. Unfortunately, interruption insurance usually will require physical damage. Worse, coverage may be excluded if your policy contains a fairly standard exclusion of loss due to virus or bacteria (CP 01 40).  Chances are better under a non-standard form policy or one with contingent business interruption coverage, which is interruption to your business based on a supplier disruption.  It will be important to review the specific policy language to see if government issued travel bans, business closures, and restrictions on gatherings could qualify as a covered peril under your policy.  Some policies have Civil Authority coverage, included in business income/extra expense insurance forms, which can arise from government restrictions and orders.  However, Civil Authority does have restrictions and will be different case by case. It is possible that civil authority coverage can only be applied if the cause of loss is covered under the property insurance, and in some instances a “virus” may not be a covered peril.

So, what can be done to ensure that a building owner has sufficient coverage going forward? Insurance Services Office (ISO) has created two business income endorsements as a response to Covid-19, Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus ─ Edition February, 2020; and Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus (Including Orders Restricting Some Modes Of Public Transportation) ─ Edition February, 2020.

Coverage will begin immediately upon suspension of operations and extends for the time period specified. Both endorsements will provide limited coverage when/if there is a suspension of operations due to closure or quarantine at the insured location ordered by a civil authority attempting to avoid or limit the spread of infection by a Coronavirus.  Both extend dependent property coverage (contingent business income) for named locations, if the policy includes dependent property coverage, when there is an interruption in the insured’s business due to closure or quarantine to avoid or limit the spread of infection by a Coronavirus.  Similarly, coverage will apply to income loss suffered by insureds operating from a vehicle or mobile equipment, if the policy is endorsed to recognize such vehicle-based operation.

For policyholders, the effects of Covid-19 are inevitable and preparing for economic disruption by examining insurance policy coverages and exclusions, as every circumstance will be different, will help with losses that are arising now and from similar outbreaks going forward