Coverage in the Time of Coronavirus: Does Insurance Always Foot the Bill?
The total number of COVID-19 cases in the US recently shot past 9 million. The country is recording its highest daily totals of new cases more than seven months after the White House declared a state of emergency. Employers navigating the pandemic are leaving no stone unturned as they attempt to weather present losses and prepare for the future.
A pressing question for everyone is how insurance coverage comes into play. Do policies designed to protect the business from disasters apply in a pandemic? With the hospitality industry hit especially hard, will insurance companies protect businesses against financial losses for shutting down venues or events, or liability for staying open? And how about keeping employees healthy so that they can continue to work?
Businesses typically purchase several types of insurance plans as part of their risk management strategy, to provide a cushion when the unforeseen inevitably occurs. Several months into the pandemic, how are insurers and courts assessing which policies pay out and which don’t?
Business Interruption Insurance
One option that businesses have for protecting themselves against unexpected downturns in business is business interruption insurance (“BII”). But can BII protect businesses against a pandemic?
BII plans cover a range of expenses, whether incurred in the ordinary course of business or arising from temporary training or relocation needs. It can also replace business income lost (based on the business’ income from prior months) due to physical damage caused by a disaster.
BII policies are not sold independently but are instead supplemental insurance plans typically attached to property insurance (or casualty) policies. The coverage that they provide is therefore generally limited to damage directly caused to the business’ property by an event such as a fire. Accordingly, if the lost income is the result of a contagious disease hampering customer demand or preventing employees from working, then the policy would not cover those losses.
Some argue that a virus can contaminate physical objects such as assembly lines, and therefore BII should cover those losses. However, insurers may push back on both this definition of “damage,” and the data regarding whether COVID-19 actually remains on surfaces long enough to infect people.
BII might offer protection if a neighboring business suffers property damage and the government shuts down all businesses in the area as a result. Over 1,250 businesses in the US have filed lawsuits against their insurers to provide protection under such clauses””but to date, courts have dismissed nearly 75% of those cases. Even so, some courts have determined that certain jurisdictions or types of clauses do not limit coverage to losses caused by physical damage.
Even if an insurer agrees that a virus can render property unusable and thereby trigger BII coverage, it is not a complete solution. These policies still do not cover the general loss of revenue from economic downturns or loss of workers due to health issues.
Does your business have a BII policy? If so, what types of losses does it cover?
Contingent Business Interruption Insurance
Another consideration is the interruption of the business’ supply chain and distribution channels. Contingent business interruption insurance (“CBI”) is an optional extension of BII that can protect the policyholder when a third party’s business is interrupted as a result of property damage or loss. The third-party can be a supplier or a customer.
Even if the policyholder is not located in an area affected by an outbreak, a supplier, customer, or distributor might be. If one of those third parties has suffered a covered loss, then a CBI policy would provide protection similar to that of a BII policy.
If your business has CBI, are all of your suppliers covered, or does your insurance contract only cover specified suppliers? Do you have a fast, reliable way to review and manage all of your CBI policies?
Other Types of Coverage
General Liability Insurance
General liability coverage (also known as commercial liability insurance) protects the business from bodily injury liability and financial liability for property damage, advertising injury, and related litigation caused by its services, business operations, or employees. This type of policy might provide coverage if a claimant were to allege that they contracted COVID-19 due to the policyholder’s negligence.
Directors and Officers Insurance
While directors and officers (“D&O”) insurance does not protect the business directly, it is still an essential consideration for businesses of all sizes. Uncertainty regarding the ongoing impact of COVID-19 can lead to second-guessing about how business leaders are managing their businesses. D&O insurance can provide coverage if shareholders or other stakeholders sue the company’s directors or officers, claiming that they failed to respond adequately to the pandemic.
Employment Practices Liability Insurance
Employers could also face lawsuits from employees if they fail to take adequate precautions when requiring employees to return to an office environment. Employment practices liability insurance can help the employer respond to these claims.
Event Cancellation Insurance
Some event cancellation insurance policies might protect policyholders that cancel revenue-generating events in response to a pandemic. For example, following the SARS outbreak of 2003, the organizers of the Wimbledon tennis tournament obtained a policy that specifically covered communicable diseases. With the COVID-19 outbreak forcing them to cancel the tournament this year, that policy has now paid them much more than they have paid for the policy since its inception. However, businesses that are just now obtaining this coverage are generally finding it impossible to get protection specifically against COVID-19.
Employee Health Coverage
There are multiple types of insurance coverage that might protect a business against setbacks such as property contamination, supply chain disruptions, or liability for causing outbreaks by allowing person to person contact. But what about medical care for sick employees?
Workers’ Compensation Insurance
Workers’ compensation insurance plans cover medical payments and a portion of lost wages for work-related injuries and illnesses. An illness must be related to the employee’s occupation in order for the employee to receive a benefit payout. As a result, communicable and contagious diseases are generally excluded from workers' compensation policies.
However, if the illness arose as a result of the worker's employment, then a workers’ compensation policy might provide coverage. These cases are typically judged on a case-by-case basis. Examples might include a health care or hospitality worker contracting COVID-19 at the health care facility or venue where (s)he works.
Standard Health Insurance
The most reliable way for the majority of employees to get the care they need will likely be through their standard health plans. Multiple providers have taken steps to facilitate access to testing and treatment, including waiving COVID-related copays or extending coverage to laid-off employees through the end of this year.
Reviewing Your Policies
There is a wide range of types of insurance plans available to business owners to protect against the unexpected, and the coverage that they provide varies from one insurer to the next. It is imperative that business leaders have an efficient way to stay on top of their insurance policies. Have you audited your insurance contracts to determine what sorts of coverage, if any, your insurer(s) will provide? An AI-powered contract management tool can help you efficiently review and analyze these clauses and more across all of your contracts. Learn more about Evisort’s powerful, easy-to-use contract management platform here.
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