Are Losses Due to COVID-19 Covered by Business Insurance?

By David C. Nelson

Are you wondering if your business’ insurance policies cover losses due to COVID-19? Have you considered purchasing additional insurance policies to protect your business from future losses due to COVID-19?
If so, you are not alone.

The outbreak of COVID-19 in the United States continues to cause businesses to cancel events, limit their products and services, or completely shut down. As a result, many business owners have questions on loss coverage under business insurance policies.

The first step in determining whether an insurance policy covers losses relating to COVID-19 is identifying the cause of the loss of revenue. The loss could be due to governmental order, law, or ordinance. It could also be an employee or customer infected with COVID-19 being at the business’ premises. Or, it could be both.

The second step is to read the entire policy to determine its coverages, exclusions and limitations, and the insured’s duties, including its obligation to notify the insurance company of a loss or claim and to mitigate its losses.

Business Interruption Insurance

Business interruption insurance coverage is usually obtained as part of a property insurance policy, such as Business Income (and Extra Expense) Coverage, but sometimes purchased as a separate insurance policy. Business interruption insurance covers the insured’s losses due to the interruption of its business caused by types of disasters defined in the policy. Coverage is typically for damage or destruction of the business’ premises resulting in the business suspending operations until the damage or destruction is repaired. Coverage is usually limited to direct losses, such as loss of business income, and depending on the language in the policy, it may cover indirect losses, such as the insured’s obligations to pay property taxes and utilities.

Business interruption coverage usually requires a “direct physical loss or damage to property” at the insured’s premises. The policy always requires a suspension or shut down of operations due to the insured being denied access to its premises and sometimes the policy requires the premises to be unhabitable. The policy may require the suspension or shut down be due to:
(a) a natural disaster, such as fire, flood, tornado, earthquake, or other act of God
(b) a governmental order, law or ordinance
(c) war, riot or civil disobedience
(d) diseases, bacteria, fungus (such as mold) or viruses

Some policies exclude diseases, bacteria, and viruses, so keep in mind that COVID-19 is both a disease and a virus. Even if the policy lists diseases or viruses as causes that are covered, other policy terms may require the disease or virus to be present at the premises. Due to these policy provisions, it could be required that COVID-19 be present at the premises (a person was at the premises while infected with COVID-19).

Civil Authority Coverage

Civil authority coverage is for the insured’s direct and sometimes indirect losses when a government authority, such the President of the United States, a governor, or a mayor issues an order or signs a law or ordinance limiting or prohibiting the insured’s operation of or access to its business. This coverage, if provided, is part of a property insurance policy. The coverage often requires “direct physical loss or damage” to the business’ premises. If so, it is very likely that COVID-19 must have been present at the premises (an employee or customer was at the premises while infected with COVID-19). If the policy does not require “direct physical loss or damage,” the insured has a stronger claim of coverage by a governmental order without a person being at the premises while infected with COVID-19.

Event Cancellation Coverage

Event cancellation coverage is for the insured’s losses when an event, such as a convention, concert, athletic competition, wedding, or banquet, is canceled due to circumstances beyond the insured’s control. This coverage, if provided, is part of a property insurance policy. The policy often requires the circumstance to be at the location of the event, which results in the same potential limitations under business interruption insurance. Event cancellation with “All-Cause Coverage” applies to all circumstances causing losses unless expressly excluded.

Supply Chain Insurance

Supply chain insurance can be obtained as either a separate insurance policy or, as what is often referred to, as “contingent business interruption” coverage added to business interruption coverage. This coverage is for the insured’s direct losses resulting from the insured not being able to supply goods or services to its customers. Covered causes, usually include acts of God, industrial accidents, labor issues, production process issues, war, riots, civil disobedience, closure of roads, bridges or other transportation, public health emergencies, such as pandemics, diseases or viruses requiring quarantine, financial issues, and governmental orders. Supply chain insurance coverage usually does not require “direct physical loss or damage” to the insured’s premises.

Commercial General Liability Insurance

Commercial general liability insurance covers the insured for claims made by another person or business for personal injury, death, or property damage caused by the insured. The coverage is usually for damages the insured is legally obligated to pay, such as damages awarded by a court or a claim the insurance company decides to settle and pay. The policy also includes the payment of defense costs, including attorneys’ fees and certain additional litigation expenses. If your business has a commercial general liability insurance policy and a personal injury, wrongful death, or property damage claim is made against your business due to the claimant becoming infected by COVID-19 or suffering property damage caused by your or employee’s negligent or intentional acts or omissions, you should immediately give notice of the claim to your commercial general liability insurance company.

All of the above-described insurance policies and coverages contain specific limits of the dollar amounts the insurance company will pay.

The factors to consider when reading an existing policy and deciding whether to make a claim for business losses include:
1. Did you suspend your business operations due to governmental order, law, or ordinance?
2. Did you suspend your business operations because a person infected by COVID-19 was at your business’ premises?
3. What are the types and amounts of your direct and indirect losses ?

Under all the above-described policies and coverages, the determination of whether coverage for losses due to COVID-19 exists is often not clear. The determination always requires knowing why the business sustained losses and a careful reading of all language in the policy, and may require research on court decisions.

For additional information, call 402-392-1250 to speak to Dave Nelson, [email protected],  or one of our other business attorneys.