At the time of this writing, there are 30,347 infected and over 388 fatalities due to COVID-19 in the US alone. Businesses across the country are shuttering in the wake of unprecedented government-imposed restrictions and recommendations by the CDC, NIH and others for individuals to stay home in self quarantine.
Businesses are left wondering what options they have to stay afloat or at the very least replace some of the lost revenue. One of the first places companies turn to is their commercial insurance policies. The most common question we see is “Does my business income coverage apply to a shut down or income loss due to COVID-19?”.
To answer this question, we have to first take a closer look at business income coverage. For the purpose of this writing, I am referring to the most common policy forms nationally. Such forms are created by ISO (Insurance Services Offices, Inc.) and adopted by carriers and state insurance departments. Business income coverage triggers as a result of direct physical loss or damage from a covered cause of loss. What many policy holders may not realize is that business income coverage is a part of the commercial property policy (CP 00 99 04 or CP 00 10) are two examples. This means that coverage must be triggered or started by a covered direct physical loss on the property policy. While many property policies are written with an “All-Risks” property insurance coverage form, the All-Risks policy covers losses arising from any loss except those specifically excluded. The stance taken by many insurance carriers to date is that the presence of Coronavirus is not a direct physical loss or damage to property. Under this interpretation of the virus, coverage does not apply under business income, civil authority, or contingent business income. (CP 00 30 and CP 00 32) two common business income coverage forms. The most thorough coverage interpretation on the grounds of a denial I have found thus far is from Zelle, LLP, a firm representing Lloyds of London against a lawsuit defending their denial of Coronavirus claim from Oceana Grills. A link to the white paper can be found here. The publication by Zelle, LLP, also goes into detail regarding the coverage or lack of triggering events from Civil Authority and the limitations of contingent business income.
Another excellent read on coverage concerns relevant to claims being filed today is from Strook & Strook & Lavan, LLP, a team of transactional, regulatory, and litigation lawyers.
Read their article here.
To further exacerbate coverage concerns, there is an endorsement that is mandatory in many states where approved that specifically excludes coverage that is the “loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease.” (CP 01 40)
In response to the initial denials, the argument from policyholders and advocates on behalf of policyholders is contrary to the opinion expressed by Zelle, LLP that Coronavirus doesn’t cause direct property damage. Coronavirus lives on surfaces for days at a time and as a result the contamination itself would be a direct physical loss and thereby should trigger the business income coverage. Under this scenario, complications still arise for those policyholders with the endorsement (CP 01 40), exclusion for loss due to virus or bacteria.
While none of this seemingly gives comfort to business owners looking for answers it does give us the direction on what needs to be done next. Filing a claim for damages or loss. Unfortunately, discussions with your agent are likely to be unsatisfying as agents themselves don’t have the authority to make coverage determinations on behalf of the carriers. Your agent may tell you the unfortunate news that they have yet to see a carrier accept coverage or make a claim payment, but you shouldn’t let that discourage you from actually filing a claim. By filing a claim, you force the carrier’s hand to make the official determination of coverage. With a coverage denial the carrier has to give you the policy provisions they determine provide the exclusion or coverage limitation giving them the authority for the denial.
Your state insurance administration has likely published a bulletin or notice advising of current actions regarding to coverage under COVID-19.
One such notice is below by the Maryland Insurance Administration
Although it’s not the news you want, it is what you need on hand in the event things do change. How or why can things change? State insurance departments, state and federal officials, litigation, the courts, and others will all play a role in what happens in the weeks and months ahead. While coverage may not exist today by the carrier’s interpretation, those interpretations may not hold up or simply be overruled by regulators or legislators. Policy holders should be cautioned however that failure to file a claim in a timely fashion could further jeopardize coverage leading to additional complications in an already complex scenario.
Bottom line, file the claim now. If you’re looking for immediate premium relief, you may also want to consider reducing the payrolls on your workers’ compensation and ratable exposures on your liability policy (likely paryoll or sales). Many carriers have also adopted grace periods or are providing premium payment flexibility during the pandemic. Some have even suspended cancellation notices for non-payment of premiums. Reach out to your broker or carrier billing department to see what options may be available to you.
Jason Rilley is Vice President at The Jacobs Company, Inc. in Columbia, MD. Jason is a licensed Insurance broker for over 18 years and holds several professional designations, Commercial Lines Coverage Specialist (CLCS), Certified Professional Insurance Agent (CPIA), an Professional Workers’ Compensation Adviser (PWCA).