Answers to your questions on how business insurance coverage works when facing coronavirus-related business losses.
In the midst of this difficult and dynamically shifting environment, business owners have to make difficult decisions about operations and cash flow. In this article, AdvisorSmith answers common questions that business owners may have about how the coronavirus relates to common business insurance coverages that businesses may carry. We also briefly explore other financial resources that are available to owners of businesses.
Is coronavirus covered by business insurance?
If you have experienced or are experiencing financial losses due to coronavirus, there are no commercial insurance policies available that will cover losses from coronavirus. Most business income or business interruption insurance policies only cover “direct physical loss,” and as a result, coronavirus-related losses are generally excluded from these policies.
If your business offers health insurance to your employees, this insurance will likely provide partial or full coverage to your employees in the event that they are sickened by the coronavirus, or if they seek testing or other treatment for coronavirus-related symptoms.
If one of your employees catches coronavirus while on the job, and the illness is considered to be an occupational disease, they may be eligible for workers’ compensation coverage, although laws vary considerably by state. For example, health care workers who catch coronavirus through the course of their work may be covered by workers’ compensation.
If your company offers group life insurance or group disability insurance, and one of your employees dies or is disabled by the coronavirus (whether they caught the disease at work or outside of work), they may be eligible for an insurance payout.
If your business continues to operate during this time, and a customer, vendor, or other third-party claims they contracted coronavirus through visiting your business and sues you, you may have coverage under commercial general liability insurance, depending on the terms of your policy and the laws of your state.
Can I buy business insurance to cover a coronavirus-related loss after it happens?
It is not possible to buy a new policy now to cover your coronavirus-related losses, as insurance generally will not be issued to cover losses that have already been discovered. For example, if you were involved in an auto crash but did not have collision coverage, you would not be able to purchase coverage after the crash that would reimburse you for the value of the vehicle.
Does business income insurance (or business interruption insurance) cover coronavirus?
Generally, no. Although the coverage provided will vary based upon the specific language in your insurance policy as well as the laws and court rulings in your state, most business interruption insurance only provides coverage when there is a direct physical loss or damage to property at your business location.
In certain industries such as hospitality, theatrical productions, and health care, business income policies may specifically cover losses as a result of “communicable or infectious diseases,” which may provide coverage for these businesses, even if they haven’t experienced a “direct physical loss.” However, this coverage is not found in most standard insurance policies, so read your policy carefully to determine whether or not coronavirus losses are covered.
In most commercial property policies, the term “direct physical loss” is not specifically defined, so the definition has generally been decided through court cases. The court cases relating to non-structural and invisible damage such as toxic gases like gasoline vapors or carcinogens like asbestos are what courts will likely look to when deciding whether coronavirus losses are covered.
These cases have found that if the presence of the toxin makes the building uninhabitable or unusable, then the business would be covered. However, an important limitation in these cases is that the policyholder has to prove that the toxin is present in the facility, and also that it makes the building uninhabitable. For example, the mere presence of asbestos in building material that has not been released into the building’s air has not been enough to trigger coverage.
For policyholders to make a successful claim, they would have to prove that the coronavirus was actually present at their business location, and that the presence of the coronavirus makes the building uninhabitable and unusable. Since testing of surfaces for the presence of coronavirus is not widely available, it will be hard to prove that the coronavirus is actually present at a business location. Furthermore, since coronavirus can easily be wiped away with soap and water or other common disinfectants, it may also be difficult to show that the presence of coronavirus makes the building uninhabitable. For these reasons, coronavirus-related business income losses may not be covered under many insurance policies, unless the policies specifically cover communicable and infectious diseases.
My business had to close due to a government order or shelter-in-place rules related to coronavirus. Will my business interruption insurance provide coverage?
It is unlikely that coverage will include losses due to government orders or shelter-in-place orders, but the ultimate outcome will be decided in court. Unless your policy has a specific clause that covers “communicable diseases,” you most likely will not have coverage under standard policies.
Most business insurance policies have a “civil authority” clause, which provides coverage if a governmental authority prohibits access to a business location due to “direct physical loss” at locations surrounding a business location. Similar to “direct physical loss” at a business’s own location, it is difficult for policyholders to show that coronavirus is causing a direct physical loss to other locations around a business.
Some jurisdictions have inserted language into their executive orders stating that the virus is causing direct physical loss. For example, in New York City, Mayor Bill de Blasio’s order states that “the virus physically is causing property loss and damage.” It remains to be seen how courts will interpret the effect of this type of language.
There will be significant litigation around the meaning of “direct physical loss” as businesses like restaurants, retailers, and others that have been forced to close by state and local governments file lawsuits, and courts will be the arbiters of whether coronavirus is a “direct physical loss.”
I have contingent business income insurance. Am I covered for coronavirus-related losses in income if an anchor tenant in my shopping center closes?
It is unlikely you would be covered. Contingent business income insurance is meant to protect your business if an anchor store in your plaza closes, or if a key vendor closes, impacting your supply chain and sales. For example, if you own a hair salon in a major shopping center, and the national retailer in your shopping center is forced to close for a month due to a fire, foot traffic to your hair salon may decline. Contingent business income insurance would cover your business in the case of a fire.
However, like the other business income coverages, contingent business income insurance requires a “direct physical loss” in order to provide coverage. Similar to the coverages for business income insurance and civil authority coverage, it may be difficult for your business to prove that “direct physical loss” occurred at the anchor tenant or supplier’s facility due to coronavirus, and therefore, contingent business income insurance likely will not provide coverage.
One of my employees was sickened by coronavirus so we had to shut down temporarily for disinfection and to allow other employees to quarantine at home. Is there any coverage available under my insurance?
As discussed above, business interruption insurance likely would not provide coverage for business losses due to closing your business because of coronavirus. If your business offers health insurance to your employees, the costs of testing and medical treatment for coronavirus may be covered in part or in full by the health insurance coverage.
If your employees are required to quarantine at home due to exposure to a suspected or confirmed coronavirus carrier, they may be eligible for up to ten days of paid sick leave that is subsidized by the federal government under the Families First Coronavirus Response Act.
If your business must furlough or layoff employees temporarily while your business is closed, your employees may be eligible for unemployment insurance provided by your state. Additionally, under the CARES Act, the federal government is providing an additional $600 per week in unemployment benefits for weeks of unemployment between March 29, 2020 through July 25, 2020. This benefit is in addition to unemployment benefits provided by your state.
What other legislation or litigation is pending in regard to coronavirus and business income insurance?
The legal environment in regards to business income insurance and coronavirus is rapidly evolving. Several cities and states have written into their mandatory closure orders that the coronavirus is physically causing damage. However, it is unclear how courts will interpret these orders as they relate to business income insurance.
Several states have introduced legislation that requires business interruption insurance to retroactively cover coronavirus-related losses, though none of these bills have passed yet. It is unclear what position the courts will take on these bills, but they may be unconstitutional under the Contracts Clause of the U.S. Constitution, which says “No State shall … pass any … Law impairing the Obligation of Contracts.”
Additionally, a number of lawsuits have been filed against insurers by celebrity chefs, casino operators, restaurant chains, movie theaters, and other types of businesses seeking coverage under the civil authority clauses in insurance contracts. These lawsuits will take years to play out, so the question of whether coverage is available may not be settled for some time.
Will my insurance premiums be refunded or reduced because of coronavirus?
Due to the shelter-in-place orders and reduced economic and personal activity in many areas around the country, the number of accidents and risks unrelated to coronavirus has been reduced. For example, fewer drivers are on the roads commuting to work, which reduces the chance of auto collisions. Additionally, businesses that are closed are at less risk of a customer falling and suing for bodily injury.
Many insurance companies are voluntarily refunding premiums to businesses for premiums paid for commercial auto insurance, general liability insurance, workers’ compensation insurance, and medical malpractice insurance where risks have fallen. Additionally, the insurance regulators in several states, including California and New Jersey, have required insurers to refund premiums to businesses where the risk of loss has been reduced.
If you believe your business may be entitled to a partial refund of premiums, contact your insurer or broker, or visit the website of your state insurance regulator.
If a customer or vendor claims they caught coronavirus at my business and sues me, will I be covered?
If your business continues to operate in the midst of the coronavirus epidemic, and a customer thinks they caught the virus from you and sues your business, you may have coverage against the lawsuit through your commercial general liability insurance’s bodily injury coverage. However, whether or not you have coverage depends upon the specific terms in your policy.
Some general liability policies exclude claims of communicable diseases, so these would exclude coronavirus-related liability claims. Additionally, many policies exclude “mold,” which also include fungus, mildew, mold, and yeast, but sometimes mention bacteria and viruses in the exclusion.
General liability claims also usually require an “accident” in order for an occurrence to be covered. Some insurance companies may take the position that given the volume of warnings about coronavirus, contracting coronavirus at your business may not be considered an “accident.” Laws and court decisions vary between states, and coverage depends on specific circumstances, but it seems likely that policyholders usually won’t be considered to be intentionally spreading coronavirus, so a customer catching coronavirus at your business would likely be considered an accident.
In summary, it seems likely that these types of claims may be covered by commercial general liability policies, but the issue has not been clarified through law or litigation, and coverage varies based upon insurance contracts and the laws in each state.
Is there any other financial relief for businesses affected by coronavirus?
The federal government has provided several types of non-insurance relief for businesses. The Families First Coronavirus Response Act provides up to 10 days of paid sick leave for employees affected by the coronavirus, as well as paid leave for parents whose children’s schools have been closed. Both types of leave are fully funded by the federal government through payroll tax credits.
The CARES Act also provides several types of relief to small businesses and their employees. For businesses that have had to layoff or furlough employees, the federal government is providing an additional $600 per week payment in unemployment insurance to laid off employees through July 2020. The CARES Act also makes independent contractors and sole proprietors eligible for unemployment benefits even though they are normally excluded. This may help one-person small businesses who have had their sales reduced due to coronavirus.
Also available to small businesses from the CARES Act is the Paycheck Protection Program, which provides forgivable loans of up to $10 million to small businesses that can cover up to eight weeks of payroll and other expenses, such as rent and utilities, to businesses who have limited sources of liquidity due to coronavirus-related impacts.
The CARES Act also allows many businesses to defer the payment of the employer’s portion of Social Security taxes that are collected between March 27, 2020, and December 31, 2020. Fifty percent of these taxes are due in December 2021, and the remaining 50% is due in December 2022.
What steps can I take to protect my business now?
- If you believe your business has a valid business interruption claim, contact your insurance company or agent as soon as possible to file a claim.
- Sign up for updates from health authorities such as the WHO, CDC, and state and local public health authorities for guidance on how to keep yourself and your employees safe from coronavirus.
- Review your business continuity plans to determine how to continue to operate safely.
- Educate your employees about ways to stay safe.
- Modify your physical workplace and work procedures to encourage social distancing, and provide personal protective equipment to your employees as appropriate.
Where can I find other resources and assistance for small businesses during coronavirus?
Below are resources for businesses affected by coronavirus, listed by state: