Answers to 4 common insurance questions

Every business owner wants to know and is hoping that somehow their insurance coverages will provide some financial relief. 

Containment efforts of the Coronavirus Pandemic across the USA is having a dramatic financial impact on every business owner, large and small. State and Federal health directives are causing businesses to close, events to be canceled, travel and gatherings restricted, self-quarantines of employees and social distancing – all of which is keeping customers home causing business revenues to plummet.

The questions we are receiving from business owners touch on many different circumstances and involve many different types of insurance coverage. For the purposes of this article, I will focus on the most common questions involving COVID-19 as they apply to the most common insurance policies with standardized coverages usual to everyday business operations.  Certain business types, like hospitals, clinics, nursing homes, airlines, travel, special events, sports and entertainment may have specially written insurance coverage not available to the average, everyday business operation and are not contemplated here.   

What insurance is designed to cover.

The first thing to understand is that all insurance policies are written with specific coverage triggers, exclusions and limitations in an attempt to pay only those claims that can be statistically predicted, then priced and reserved so they can meet that obligation.  Catastrophic events like earth movement, flood, government action, nuclear hazard, war and terrorism can be so large or so common they are excluded. They are too large of exposure for any insurance company to withstand without becoming insolvent. So, out of necessity, these insurance coverages are NOT designed to pay for catastrophic, country-wide types of claims, like a pandemic, and insurance companies may deny these claims, depending on all relevant circumstances. Because the intent is to exclude virus related coverage, no endorsement to add this coverage is generally available in the marketplace except perhaps for very large and specialized industries. 

COVID-19 Insurance Claim Relief?

Property Insurance (CP) –

Q. If my employee tests positive for coronavirus and had touched my stock, inventory, work surfaces will my Property Insurance policy pay to sanitize my premises and replace the contaminated items? 

A. Property losses are triggered by “direct physical loss or damage to covered property”. Losses to your property are insured for Covered Cause of Loss which in most cases is Special Form, the broadest coverage form.  In the exclusions of this form are things like Earth Movement, Government Action, Nuclear Hazard, War and Military Action, Water (like flood) and many other exclusions including Business Interruption unless added as a coverage. After other past virus outbreaks, to clarify the insurance company’s intent not cover these events, a specific exclusion is now endorsed on most property policies for “Loss Due to Virus or Bacteria”. The exclusion says “We will not pay 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.”  So, a business closure because of the threat of contamination or an actual contamination of a business premises with a communicable disease has not been considered a “direct physical loss” in most jurisdictions and is may also be specifically excluded. NO coverage is likely for this type of loss.

Business Income (formerly Business Interruption) (BI) –

Q. If my business if forced to close due to a public health order or quarantine, will my Business Interruption insurance pay for your lost income? 

A. About 10 years ago there was concern the heading "Business Interruption" might mislead consumer coverage expectations, so the policy form heading was changed to "Business Income" which is the current form used today. This coverage is dependent on the Property portion of the policy and is triggered by “direct physical loss or damage” that must be caused by or result from a Covered Cause of Loss. An additional coverage may include “Civil Authority” that prohibits access to your insured premises because of a Covered Cause of Loss that causes damage to property other than your property. Some BI forms also include coverage for a covered physical loss to a “dependent property” (supply chain).  Again, a virus outbreak has not been interpreted legally as a “direct physical loss” in most jurisdictions and is may also be specifically excluded by the “Loss Due to Virus or Bacteria” endorsement. NO coverage is likely for this type of loss.

Commercial or Business General Liability (CGL) –

Q. If a customer claims they were infected by the coronavirus at my business location or because of contact with my employees, will my Commercial Liability insurance protect me? 

A. The CGL policy form is very broad in coverage and will defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance applies (paraphrased).

If coverage applies and you become legally liable, the policy would pay a judgment and defense costs unless excluded. There is a common liability exclusion for Fungi and Bacteria which would not apply to Virus. However, some versions of this exclusion also contains "Viruses". You must read your own policy and if you find this exclusion that includes "Viruses" then injury or damage arising out of or related to the presence of, suspected presence of, or exposure to: c. Viruses would be excluded from coverage.  

That said, it is unlikely an average business would be judged negligent for the casual contact between employees and the general public necessary to conduct face-to-face business transactions. The business must do what a reasonable and prudent person would do under the circumstances to protect the public. To be negligent the business owner or the employee would most likely have to know they were infected and accidently exposed others to the virus. The best defense for business owners is to strictly follow the recommended health department guidelines for their type of business.  

Certain businesses that have custodial care of customers like hospitals, clinics, schools, airlines, cruise lines, and the like may be held to a higher duty and legal standard. 

Workers Compensation (WC) –

Q. If your workers are forced into quarantine or claim they became sick with the coronavirus because of contact with co-workers or customers, will medical and loss wages be covered by Workers Compensation? 

A. Workers Compensation policies are state specific but these general claim rules apply – two coverage triggers must be satisfied for any illness or disease for a claim to qualify as “occupational”.

1. The illness or disease must arise out of, in the course of, and scope of the employment. 2. The illness or disease must arise out of or be caused by conditions “peculiar” to the work.

The vast majority of employees that may come in contact with the virus or be infected by the virus will do so as an incidental part of their job and will likely not have sickness coverage coming from Workers Compensation. However, specific types of employees that work in the health care industry or employees with a job that directly exposes them to the virus may qualify for a workers compensation claim. 

Things may change!

Coverage for every loss is determined by a specific set of circumstances. Nothing said here precludes a business from making claim for a loss, even if coverage is unlikely. Also, legal arguments are being made in lawsuits that the physical presence of the virus at a business should be interpreted as a “Direct Physical Loss” or they will make some other creative challenge to the Virus exclusion, but these are uphill battles based on technical grounds that could take years of court action to render a decision. It is also possible that under pressure from the Department of Insurance or a new law, that some coverage may be forced or negotiated with the insurance industry. Also, some financial relief may come from Federal and state governments.

For more information please email Info [at] Am-Ins [dot] com or Contact Us to speak with an experienced American Insurance agent.  

DISCLAIMER: The content of this article is general in nature and is not intended as a substitute for professional legal, financial or insurance counsel for individuals. Insurance coverage forms vary by issuing company and by state. Read your policy.  Seek competent legal advice.  For specific insurance advice you are invited to Contact Us.  

Sources: Various policy forms of Insurance Services Offices, Inc. were reviewed.