What does insurance cover in the coronavirus crisis?

The coronavirus situation is on everyone’s mind. We are receiving calls asking, “How will my policy respond?” We know many more of you have similar questions. Here is a brief primer on how insurance will likely respond and what your organization can do to prepare. 

The two policies under primary consideration regarding a coronavirus outbreak are business-interruption insurance and general-liability insurance. Business-interruption insurance pays if your business is shuttered or reduced due to a covered cause of loss and the organization cannot continue to generate the same level of revenue. General-liability insurance pays if there is an allegation of bodily injury, such as someone getting sick due to your negligence.

Business-income (BI) coverage is only triggered when there is “direct physical loss” to your property. Since coronavirus does not cause physical damage to tangible property, it is unlikely a standard BI policy would respond. Even if it did, many policies carry an exclusion for property damage caused by “virus or disease.” However, there is an additional BI coverage — the civil authority additional coverage — that offers an extension of coverage. Civil-authority coverage applies when the physical area around your place of business is closed-off by a governmental authority due to damage in the area by a covered cause of loss. This action must be due to “dangerous physical conditions resulting from the damage.” For example, a client collected on a claim when its campground was ordered to be closed for several weeks due to nearby wildfires. Since fire is a covered cause of loss, the claim was paid — even though there was no fire damage to the buildings.

This brings us to the central question. Is coronavirus a “covered cause of loss”? If you purchased the highest-quality form of coverage, there may not be a specific exclusion for a disease like the coronavirus, meaning there is the potential for coverage. However, an insurance company would argue that there were no “dangerous physical conditions” resulting from a potential coronavirus epidemic. A quarantine is designed specifically to prevent a dangerous condition. An empty Main Street due to either mandated quarantine or general fear of virus is not by itself a dangerous physical condition. We do not anticipate in the near future that you would even have the option for coronavirus insurance coverage. There is enough data on the frequency and severity of fire, tornado, and flood losses to develop a fair rate. There is no data about the frequency and severity of coronavirus losses, so there is no way to accurately price coverage. 

What about a general-liability claim, due to coronavirus? For example, an organization had negligence at its facility, causing the incubation or spread of the coronavirus. Those affected would undoubtedly claim, probably in court, that they experienced “bodily injury” from the negligence of the organization. This allegation would cause the general-liability policy to respond, provided coronavirus was not an excluded cause of loss. While coronavirus is too new to be excluded by name in most policies, there is also no other exclusion on an unendorsed general-liability policy that would distinctly remove coverage. Some policies carry a “communicable disease exclusion,” which would certainly alter this position.

In summary, if your organization’s revenue suffers because of coronavirus fears or reality, there is likely no insurance coverage. If your organization directly causes others to contract the coronavirus, there may be coverage for harm caused to others.

As professional risk managers, we see the most significant risk of coronavirus coming from the ensuing fear, rather than the disease itself. If a case is confirmed in your municipality or county, how will your clients and employees respond? Will they come for your services or come to work? What if misinformation about the disease is spread by fearful and ill-informed stakeholders? The distraction and lost productivity from this fear is a potential for loss. We recommend you consider the following: 

• Create a response — your leadership team should adopt a united front to address the fears of clients and employees. 

• Carefully communicate — decide what you want to communicate to employees and to customers, if anything at all. Encourage people to be appropriately careful, but not stoke fear.

• Update your disaster-response plan — What is your worst-case scenario? How would you handle it? A little bit of preparation now will save time and money if you were to be directly affected by the results of fear or the disease itself.

It is important to note that depending on the size and scope of your organization, you may have other policies that could respond. There may also be other stakeholders, like a board of directors or donors, who need to be considered.       

Joseph Convertino, Jr. is president of CH Insurance. Contact him at jconvertinojr@chinsurance.cc