COVID-19 Has Become a Pandemic

What does that mean for your business?

As your broker and risk management consultant we are here to answer your questions and help you through these events  triggered by the spread of the COVID-19 virus.

Businesses and individuals are grappling with the possibility of having to shut down operations due to the spread of the virus or telecommuting when it is possible.

A Pandemic is an epidemic that is spread over a large region or worldwide. A pandemic is a catastrophic event that is not typically covered under a property and/or general liability policy.  Sometimes it takes a catastrophic event to happen before the insurance market place will respond.   The best example is the Terrorism coverage which was not conceived before 2001.  It was not an available coverage until after the horrendous acts that generated the catastrophic losses.  Flood insurance was not available until 1968.

Loss of business income is one of the major concerns for businesses right now.  The insurance industry has always sought to either exclude or limit coverage for viruses.  There are some exceptions to this rule for certain industries.

We are receiving many questions about how can businesses continue to operate with the civil authority enacting limited public gatherings, closing schools,  and patrons are fearful of public outings.   Below are samples of questions we have received.

• What happens to my business and how will I continue to operate with either no business income, patrons, funders or employees?
• What type of continuity plan should the organization enact?
• What if I am unable to continue the current number of employees?
• How do we maintain our key employees?
• What happens if our business location is infected?

We have reached out to our carriers to discuss these issues and have either received limited information, statements to refer to policy endorsements and/or exclusions or file a claim, and their learned adjusters will adjudicate the claim on its own merit, as well as determine the applicable coverages and policy forms and/or exclusions.

We have researched different opinions relating to where coverage could be afforded, outside the Business Income/Interruption. Each policy is different and that carriers will look to the policy for stated coverage forms or exclusions.   You have the right to appeal any decision rendered by the adjuster.

The vast majority of property commercial insurance policies will have an exclusion due to a loss from a virus, bacteria or fungi.  There may be some industries whose exposures may afford some coverages, however, they are limited in scope and only provide a limited period for lost revenue and it also requires the local health authority to close the business.

We have attached a legal opinion from Shannon O’Malley of Zelle, LLP on Commercial Property Insurance  coverage and the Coronavirus, as well as some links from others with their point of view of if there is coverage:

Shannon O’Malley’s Statement

Corona Virus and Business Income Losses from Virtual University

Coronavirus Losses: Will Your Commercial Insurance Policies Respond? from National Law Review

Below is some information about the coverages detailed above.

Property insurance is intended to cover a “Direct” loss and “Indirect” loss.  A direct loss is a loss to a building or business personal property.  An indirect loss is a loss of the business income or extra expense that a business would incur while unable to continue operations or sometime after.   Below are examples of a direct loss: 

1. A fire loss that damages a building or business property within a building
2. A burst pipe that causes water damage to either the building or the personal property
3. Wind damage that can either damage the exterior or cause the building inspector to deem the property uninhabitable due to wind damage
4. Utility suspension due to lighting hitting an above-ground electrical pole or above the ground transformer
5. Flood loss, if the policy is endorsed to include this type of cause of loss

From the types of losses above, the direct damage is to the building and/or business personal property

Some examples of an indirect loss would be the following:

1. A Fire loss and the business must shut down and the business cannot continue normal operations
2. A burst mainline pipe and there is no running water so operations must shut down
3. Wind damage has left the building uninhabitable and the operations are shut down with no income being generated
4. A Flood loss, if the policy is endorsed to include this type of cause of loss inundates a 1 story bakery and the business is shut down for  5 months for clean-up and repairs
5. Tire manufacture has a fire loss that destroyed all of the tires.   Lost earnings resulting from a third-party supplier or distributor shutdown directly impacting the policyholder’s operations

From the types of losses above, the indirect damage is to the loss of revenue and the extra expenses the business would incur to continue operations if possible.

The following are types of losses that would not be covered under a standard Commercial Package or Businessowners:

1. Virus or Bacteria
2. Earth Movement –   (Must be endorsed to have the coverage)
3. Water  – (Must be endorsed to have the coverage)
4. Neglect
5. Government Action
6. Nuclear Hazard
7. Wear & Tear, rust, corrosion, decay, deterioration, defect
8. An infestation of birds, rodents or other animals

There are two new endorsements that the Insurance Services Office (ISO) created in February due to the Coronavirus. 

Insurance Services Office (ISO) monitors emerging issues and trends that may affect the insurance industry. In response to the Coronavirus, and because many if not most policies contain a virus exclusion, ISO created two business income endorsements as a specific response to the Coronavirus:

1. Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus
2. Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus (Including Orders Restricting Some Modes Of Public Transportation) 

Please note these forms have not been filed on behalf of the insurance industry nor have they been approved by any state insurance commission.

These forms are being made available to the insurance carriers for use.   In order to do so, they must obtain approval with the state insurance commission and file rates that they  will charge of each endorsement.   We are in contact with our carriers to ascertain if they will use the forms and ask for approval from the state commissions.    We will keep you posted on any responses we receive. 

For more information regarding how health and benefit coverages may be affected during this pandemic, please click here.

Below are links to the OSHA website for guidance on workplace safety,  CDC Interim Guidance for Businesses and Employers and other government recommendations.

OSHA Guidance on Workplace Safety

CDC Interim Guidance for Business

Department of Health and Human Services

CDC Guidance for Risk Assesment

OSHA COVID-19 Standards

COVID-19 and the Fair Labor Standards Act Q&A

COVID-19 and the Family and Medical Leave Act Q&A

DOL Guidance on Unemployment Insurance Flexibilities During COVID-19 Outbreak

DOL Guidance for Preparing Workplaces for COVID-19

Ready.gov provides detailed information, and even a free software program, for developing a business continuity plan in the face of a variety of hazards, including health hazards such as widespread and serious illnesses.