CORONAVIRUS BUSINESS INTERRUPTION INSURANCEIs Coronavirus Covered by Business Interruption Insurance?

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Coronavirus Business Interruption Insurance Coverage

As businesses suffer due to the coronavirus, there will likely be increased insurance claims. But whether these claims will be covered depends on several factors. Contact Shamis & Gentile P.A. to discuss Coronavirus Business Interruption Insurance coverage.

As the coronavirus continues to spread, so do the concerns of individuals and business owners. For many businesses, the virus threatens to disrupt supply chains, production, and revenue. Many are looking to business disruption insurance to cushion the blow. But the safety net they thought they’d purchased may not be there.

Businesses, large and small, could experience an interruption to their business due to the coronavirus outbreak. Many will seek relief through their business insurance, specifically through policies that cover business interruptions. But while many policies do have business interruption coverage, a significant number of these policies exclude compensation for communicable disease outbreaks, a change many insurers made after the SARS outbreak of 2003.

What is business disruption insurance?

Most small and medium-sized businesses (SMBs) carry some form of business disruption insurance. This includes coverage in the event of a natural disaster or fire.

Business disruption insurance is typically not a stand alone policy, but part of an overall comprehensive insurance or property/casualty policy. Depending on the type of policy your business holds, coverage is limited to certain types of disruptions and exclusions.

How communicable diseases changed business interruption insurance

The Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 put insurance companies on notice.

After Mandarin Oriental International Ltd. received $16 million from its insurers to pay for business interruption losses due to SARS, policies were quickly updated to exclude certain types of disasters — specifically communicable diseases.

In another SARS-related case, the Court of Final Appeal ruled the insurance company’s liability was limited to the amount of disruption caused after the contagious disease was “required by law to be notified to an authority.”

This “trigger date” limits the amount of payment a carrier has to pay to the insured, even if the disruption began before the official reporting date. On January 8, 2020, COVID-19 was included in the Prevention and Control of Disease Regulation 2020 and the Prevention and Control of Disease Ordinance, making it a notifiable disease.

But after SARS, the insurance industry began to exclude losses incurred by communicable disease in most policies. The only coverage that pays for such losses are specifically pre-negotiated.

Communicable Disease Coronavirus Business Interruption Insurance Coverage

Some industries remember the SARS losses and negotiated communicable disease coverage.

This specific rider must be negotiated and accepted at the time the policy goes into effect. Even for these, there may be limitations on the amount of recovery an organization can realize. A trigger event may be outlined in the policy and may be required from a qualified agency to begin the disruption recovery.

This could include a closure to sanitize facilities or protect employees or consumers.

  • Organizations impacted by coronavirus or other pathogens — and carry communicable disease coverage — may still have to wait for an appropriate authority to inspect and certify their facility.
  • A second order from that authority may be needed to lift the closure — but even then, some policies predetermine a maximum amount of days that are reimbursable.
  • Even with communicable disease coverage, many policies limit the amount of recovery to physical costs (cleanup) and exclude loss of revenue inflicted by the outbreak in the policy.
  • Specific, pre-negotiated terms that cover customer or supply chain losses would be needed, but may be cost-prohibitive to most businesses.

Shamis & Gentile, P.A. Coronavirus Business Interruption Insurance coverage

These plans are typically subject to a maximum payout and can be costly. Work closely with your insurance broker or Shamis & Gentile, P.A. to look at all aspects of the policy, all exclusions and all potential contingencies, before you decide what’s the best plan to meet your needs.

As the coronavirus continues to spread, individuals, business, governments, and healthcare providers will see its impact and fallout.

If your business is impacted by coronavirus, review your insurance policies now and be sure to document coronavirus-related business impacts. Contact Shamis & Gentile P.A. to discuss Coronavirus Business Interruption Insurance coverage.

Coronavirus Business Interruption Insurance

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Coronavirus Business Interruption Insurance coverage