We’ve added a video summary of the original post below.  The date of the video below is 04/16/20

At the time of this writing (03/22/20), 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

Link to MIA notice

FOR IMMEDIATE RELEASE: 3/18/2020 FOR INFORMATION, CONTACT: Craig Ey, 410-468-2488 Maryland Insurance Administration Advisory on Business Interruption Insurance ​BALTIMORE – The Maryland Insurance Administration is receiving a high volume of inquiries about Business Interruption insurance. Business Interruption coverage is typically triggered under a commercial insurance policy when a covered risk / peril causes physical damage to the insured premises resulting in the need to shut down business operations.  For example, if a fire damages a business and the business cannot operate during repairs, business interruption coverage would be available subject to the terms and limits in the policy. Most policies require a waiting period of 24 to 72 hours before coverage begins and coverage continues for the reasonable period of time to restore the property and reopen, subject to the coverage limit of liability.  Some commercial policies provide Business Interruption coverage when a business is shut down due to an Order by a civil authority.  However, the policy still typically requires a physical loss from a covered peril as the underlying cause of the business shut down to apply. All insurance policies have exclusions of coverage for risks that are too great to be underwritten at an affordable price.  For example, commercial and personal property insurance policies typically contain specific exclusions for loss or damage caused by war, nuclear action and radiation.  The potential loss costs from such perils are so extreme that providing coverage would jeopardize the financial solvency of property insurers. Global pandemics like COVID-19 usually fall into this category. However, policies can be different. We recommend that businesses review their policies and reach out to their insurance professionals with any questions. The Maryland Insurance Administration would like to reassure Maryland businesses that we are closely monitoring insurance issues related to COVID-19. Our core mission is making sure insurance companies treat customers fairly and follow the provisions in their policy and applicable state laws. We are monitoring relief activity efforts aimed at assisting individuals and businesses at the local, state and federal levels.  As information regarding relief programs becomes available, it will be posted on our website:  www.insurance.maryland.gov.

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).