Business Interruption Insurance
Business interruption insurance coverage protects against losses sustained due to periods of suspended operations; it pays the loss of revenue that would have been earned if there was no business interruption. It typically covers physical loss to property and usually has specific exclusions for viral infections such as COVID-19. Contingent business interruption insurance policies protect against losses from supply chain disruptions but may require the occurrence of property damage to trigger coverage. Cancellation insurance provides coverage for expenses arising from delays, rescheduling, or cancellations due to unforeseen covered events. Typically, policies exclude coverage for communicable diseases, such as COVID-19.
Direct Physical Loss
Commercial policies typically require “direct physical loss” to the property and proof of causation. In the event of a claim for coronavirus-related business interruption, questions are arising as to whether this “physical loss” requirement has been met. In circumstances where a business has been closed as part of a mandatory or voluntary closure- but is otherwise still habitable and uncontaminated- it has probably not suffered a direct physical loss since infectious diseases arising from human-to-human transmissions generally will not qualify as property damage.
If the property has been contaminated and uninhabitable due to coronavirus, there may be a basis for a policyholder to claim that a direct physical loss has occurred. It is unlikely that the coronavirus will allow for a one-rule-fits-all conclusion when it comes to a determination of whether an insured has suffered a direct physical loss. Rather, it is more likely that each claim will be investigated and evaluated based on the specific facts.
Contingent Business Interruption
Some policies allow for contingent business interruption coverage arising from disruptions with a supplier or customer, while still requiring that the underlying cause fall within a designated cause of loss and arise from direct physical loss to property- similar to the policyholder’s coverage for a first-party loss. For businesses dependent on supply chain production, contingent business interruption coverage often provides coverage when a supplier suffers a direct loss to its property that impairs its ability to provide good or materials. Insureds in the manufacturing, hospitality and health care business are the most common policyholders for this product line.
Specialized Business Interruption
One type of specialized coverage is Hospitality and Health Care for Communicable and Infectious Diseases coverage, which arises from the shutdown of operations, in some cases without requiring physical loss to property. These policies focus on insureds in the business of health care and hospitality and typically extend insurance coverage for business interruption losses caused by “communicable or infectious diseases.”
Pandemic- Specific Coverage or Exclusions
Pandemic-Specific Coverage or Exclusions coverage is a specific type of coverage that would cover loss due to facilities such as hospitals, hotels, airports, shopping centers, restaurants, theaters and gyms that might be forced to shut its doors because of an Ebola or related outbreak.
Civil Authority Coverage
Other policies extend business interruption coverage for losses arising from “civil authority” orders that impair or prohibit access to an insured’s property. The scope and limitations of business interruption coverage under such endorsements vary and can be issued pursuant to an insurer’s standard form endorsement, and they can vary based on whether a “direct physical loss” will be required.
Sources: The National Law Review National Association of Insurance Commissioners