Business Interruption, COVID-19, and Loss Mitigation

Coronavirus is rapidly becoming an international catastrophe of unprecedented scale, at least to the modern world. The disruption it is causing is wreaking havoc on the economy and one of the largest drivers of that is the interruption and loss of businesses, large and small. As of now, many states have begun to shut down schools, limit gatherings in public, and order restaurants to be limited to only providing takeout service. This interruption has led many businesses, in light of a huge loss of income, to wonder what they can do to help mitigate that risk. Naturally, this has led many to see out insurance coverage or to review their current coverage to see what can be done.

Coverage depends largely on the situation and the policies you have in place but there are some key ideas to keep in mind:

  • First Party Property Policies are typically triggered by property damage. They are meant to replace lost income from damage to the policyholder property (which would be business interruption), damage to property of customers or suppliers, government action, or damage to properties which could attract customers to the business. The question is whether or not the presence of the virus counts as property damage and, if so, whether that damage affected the income of the business.
  • Non-Structural Property Damage is a more interesting situation. The coronavirus has not been reported to cause permanent property damage, but it can be transmitted through the air or from infected surfaces. In similar situations, courts have determined that the presence of harmful substances at or on property does count as property damage and that is enough to trigger first party property coverage.

By far the largest losses that American businesses are going to see will be “contingent business losses,” which are losses caused by “damage to a supplier or customer.” Many businesses have already seen the loss of suppliers and customers located oversees, and those supply chain interruptions are almost certainly going to get worse and not better. Further, the closure of public spaces and cessation, at least temporarily, of all nonessential business activity in major cities may be a trigger for the government action clause of those property policies.

Considerations on the other side, however, are also numerous. Policies often have broad exclusions for damage that is stemming from biological agents. Additionally, many policies have sub-limits for coverages and waiting periods before the coverage can be triggered. Another concern is time. If the presence of the virus is considered to be property damage, then the insurer need only cover the period of time needed to “clear” the virus out, which for an airborne virus without a long survival rate on surfaces, could be exceedingly short.

How has your business been affected? Do you have coverage that you think may apply to stem the tide of losses? The only way to know for sure is to discuss your particular situation with an insurance professional. We’d love to hear from you, click here to contact us.

 

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