Does Business Insurance Cover Interruptions Due to a Pandemic?
We have been asked if there is coverage for Coronavirus (COVID-19) claims under our Business Owners Policy (BOP). Our current perspective is that there is no coverage for property damage or business interruption virus-related losses in our BOP product. That is the standard for BOP carriers and the industry. Business Income Coverage does not apply when business slows or suspends operations due to viruses. Coverage for viruses is excluded because the exposure cannot be adequately quantified for pricing.
More specifically, Business Income Coverage reads "We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your 'operations' during the 'period of restoration.' The suspension must be caused by direct physical loss of — or damage to — property at the described premises. The loss or damage must be caused by — or result from — a Covered Cause of Loss."
"Direct physical loss" and "damage to property" are the key words. Reaction to the threat of a virus, that in turn reduces sales, is not direct physical loss or property damage. Likewise, it is not a direct physical loss or property damage when suppliers cannot deliver items businesses need or cause operations to slow, even when that action is directed by a "Civil Authority"/government.
And, most importantly, virus-, bacteria- and fungi-related losses are excluded under our BOP for property claims.
Most carriers follow this approach and use these same forms and rules.
If you have an insured who wishes to present a claim, they should contact our Claims team at (800) 220-1351 to receive a definitive answer and response to their losses.
You may hear about new forms being described in a Professional Insurance Association (PIA) memo that could expand commercial coverage. These forms are designed for use with ISO's Commercial Property product, not Business Owners; we only sell BOP. ISO did not file these in any state; these forms are only examples of what a carrier could use should they choose. We have no plans to use these forms. We think it is unlikely any carrier would use these for BOP, and we do not know of any insurer currently doing so.
We use the most current ISO BOP policy forms, which are the industry standard. We believe our competitors use the same, or similar, language. There are risks which are considered uninsurable by the industry - flood, terrorism, nuclear war, nuclear accident, etc. It is not possible to predict and price for these types of risks in a standard insurance policy. In some cases (i.e. flood or terrorism), the federal government created mechanisms to provide coverage.
The risk related to viruses falls into this category. Damage from viruses is not insurable in a standard policy, so it is not covered. There are state legislatures around the country now considering government solutions for the many small businesses facing economic hardship due to COVID-19. We are actively watching to see how that progresses.
Please let us know if you have any other questions.