COVID-19, otherwise known as the coronavirus, is becoming a widespread public health crisis around the globe. Many businesses have already felt its presence either directly or indirectly through the outbreaks in Asia and Italy, with many more preparing for future business disruptions. The descriptions below provide short summaries of different forms of business insurances and what issues businesses may encounter for losses related to this virus.
Business Interruption Insurance: This type of insurance is generally a part of commercial property policies and covers economic losses that a business experiences while the business is recovering from physical property damage. To trigger business interruption coverage, the business typically must experience actual physical damage to the covered property. However, some courts in certain jurisdictions have held that contamination rendering a covered property uninhabitable or unfit for its intended use may constitute “property damage.”
Civil Authority Insurance: Property policies may also have a limited coverage endorsement that provides coverage for income losses associated with forced closure of the covered property by a civil authority, because of a peril at the property or in its vicinity. Businesses should review their policies to determine whether an illness or virus is a covered peril. Depending on whether an illness or virus is a covered peril, the civil authority endorsement may entitle businesses to some form of relief if the government has ordered the covered property to shut down for a period of time.
Contingent Business Interruption Insurance: This type of insurance covers economic losses that a business experiences from damage to the property of a third party whom the business depends on for its business (think supply-chain). Again, this type of insurance may not be available if the policy requires physical damage to the third party’s property. These types of policies may also limit insurance to direct suppliers only and may not cover indirect suppliers.
Trade Disruption Insurance: This type of insurance will cover business losses triggered by certain risks in trade such as port closures, quarantines, product transit halts and embargos. Although these policies may not require a direct physical loss to goods, the policy may not cover certain risks such as contagions, illnesses or viruses. Depending on the language and the risks covered, trade disruption insurance may provide some level of protection for businesses.
General Liability Insurance: This type of insurance covers claims made against the business by third parties. Businesses may face third-party claims where the third party tries to link their illness to exposure from visiting the business itself or to an employee’s illness. Businesses should be aware that most general liability policies include “pollution” exclusions, which may define “pollution” as, in part, a contaminant or contagion.
Warner Norcross + Judd’s Insurance Practice Group is prepared to assist clients and navigate insurance issues related to COVID-19. Please contact a member of the Insurance Practice Group if you have any questions.