Are Business Losses from the Coronavirus Covered by Insurance? It Depends.
March 19, 2020
On Monday, March 16, 2020, President Trump announced a list of guidelines for Americans to follow to lessen the spread of the coronavirus—i.e., “flatten the curve.” President Trump’s guidelines request Americans to work from home, avoid social gatherings of more than 10 people, avoid going to restaurants, and avoid discretionary travel.1 Given these restrictions, and state officials encouraging all Americans to practice “social distancing,” many companies are worried how these restrictions may financially impact their businesses. To address these concerns, companies should immediately assess whether they possess insurance coverage protecting them from any economic losses they may experience should their business operations be “interrupted” by the coronavirus.
Today, many companies possess business interruption insurance as a component of their first-party property insurance, or as a free-standing policy. This coverage protects companies from losses sustained when a business suspends its operations due to property damage. Generally, viral diseases, such as the coronavirus, do not constitute “property damage” and are not typically covered by these types of policies. Some jurisdictions, however, have held that commercial property that becomes uninhabitable, or otherwise not fit for use, qualifies as having suffered “physical loss”, and depending on the terms of the policy, coverage might be afforded. The scope of coverage will, of course, depend upon the specific provisions set forth in each individual insurance policy.
While every policyholder is encouraged to review the specific terms of their policy to determine whether coverage may be afforded for a coronavirus business interruption, it likely is not. Following the 2003 SARS outbreak, insurance companies began inserting detailed communicable-disease exclusions into policies to prevent losses stemming from the same. It is therefore anticipated that most business interruption policies exclude coverage for a virus outbreak. Some states, such as New Jersey, have proposed legislation that, if enacted, would force insurance companies to provide virus coverage—even if the policy contains an exclusion.
Companies should carefully look through existing policies to see what coverage, if any, they have for today, and if none, what coverage they may want to purchase in the future. Companies should also document any coronavirus-related business impact they are experiencing in the event coverage is provided for under the terms of their policy.
1 See coronavirus.gov