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Are COVID-19 Losses Covered By Business Interruption Insurance?

03/23/2020
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Covid-19 is disrupting businesses, their supply chains and their customers and causing major losses. Governors of Illinois, California, New York and Pennsylvania have issued “stay at home” and similar orders impacting employees and many businesses. Are any of these losses covered by insurance? The answer is maybe.

The type of insurance a business carries and the specific insurance policy language are critical to determine if coverage for business interruption losses is available. Almost all businesses have some type of business interruption insurance. A typical business interruption policy will cover business interruption losses due to a “physical loss.” So, there is a general impression that losses due to the Covid-19 virus are not covered. However, various states, including Illinois, have case law that may support a claim for business interruption if access to facilities is fully or partially restricted due to a health hazard on or around the business premises. Also, the “stay at home” and business shut down orders issued by governmental authorities such as Illinois, California, New York and Pennsylvania prevent employees in non-essential businesses from working at a business facility or require certain business facilities to close. This type of governmental or “civil authority” action may potentially trigger coverage under certain business interruption policies.

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Some insurance policies may have specific exclusions that might apply. For example, some policies specifically exclude claims for infectious diseases and some policies specifically exclude viruses, while others do not.

SPECIALIZED COVERAGES

In addition, businesses may have purchased expanded coverages such as supply chain disruption coverage, event cancellation coverage or travel insurance coverage. Such policies are often written broadly as “all risk” coverage. Covid-19 claims are more likely to be covered under such policies.

WORKERS’ COMPENSATION AND THIRD PARTY CLAIMS

Workers’ compensation coverage and traditional general liability policies may provide coverage for certain employee or third party claims. Under such policies the insurance carrier has a very broad duty to defend the claim even if there is a question as to coverage.

INSURANCE RENEWALS

It is important to be cognizant of potential Covid-19 claims at the time a company’s insurance is up for renewal. Insurance companies may include Covid-19 exclusions into new insurance policies. Under “claims made” insurance policies, the insurer only responds to claims that are made during the policy period. Businesses can potentially preserve their right to make Covid-19 claims under renewed policies by providing a “Notice of Occurrence” letter to the carrier prior to the renewal.

NEXT STEPS

Please note that your insurance company must receive timely notice of any Covid-19 related insurance claims. Your insurance broker is a good initial resource to provide information about potential coverages, exclusions and time periods for making claims. We are monitoring legislation at the state level and current litigation that may impact potential insurance coverage and exclusions for Covid-19 related claims and will provide updates as they become available.

The ongoing issues related to the spread of the Coronavirus (COVID-19) have had and will continue to have a significant impact on individuals, families, businesses and markets. Visit our collection of resources providing guidance during these fast-changing circumstances. Please reach out to your lead team member to answer specific questions.

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