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Insurance Coverages for Businesses: Will your insurance cover you for a coronavirus-related loss?

As the coronavirus continues to spread, more and more businesses will be impacted in one way or another, ranging from general slowdown and reduction in revenue, manufacturing, supply chain and vendor disruptions, to full-on closures for one or multiple periods of time, the impact, while currently unknown, has the potential to be vast. 

There are numerous types of insurance coverages available to businesses.  The majority understand at a basic level that some type and amount of insurance coverage is needed, but not everyone understands the scope of their coverage and if they are adequately insured.  It is not uncommon to find business owners operating with a false sense of security, thinking that their insurance will certainly provide coverage if and when there is a need.  After all, isn’t that what insurance is for?  What many people may not realize is that the actual scope of coverage is policy specific and can vary greatly.  Depending on the language used and the exclusions listed in a policy, a business may find itself without coverage at a time of loss.

Commercial general liability coverage is a general policy which is usually a rider to a business property and casualty insurance policy that protects your business from financial loss in the event of bodily injury and property damage resulting from your business operations or injury that occurs on the business premises.  Legal expenses related to the defense of third-party bodily injury or property damage claims are also typically covered under a general liability policy.  A business may look to its general liability policy in response to a consumer complaint by a person who has contracted coronavirus if such claims allege the business failed to take reasonable action to protect against or warn of the exposure to the virus.

Workers’ compensation insurance is a policy that provides lost wages and medical expenses to employees who are injured or become ill while performing within the scope of their job.  It also operates to protect employers from an employee’s claim of negligence as it relates to the injury. Workers’ compensation insurance may come into play in the event an employer receives a claim from an employee who contracts the coronavirus. While most workers’ compensation policies have some form of exclusion for communicable diseases, the policy may provide benefit if it can be established that the disease was contracted while within the scope of employment.  

Directors and officers liability insurance protects the corporate directors and officers from personal liability in the event they are personally sued as a result of serving as a director or officer in managing the company. There are usually policy exclusions that apply to a director or shareholder’s willful misconduct or fraud.  Depending on the specific policy language and factual circumstance, it remains to be seen if a directors and officers liability insurance policy will provide coverage in the event of a claim that company officers or directors, in response to the coronavirus, were negligent and caused the company loss.

Business interruption insurance is additional coverage which a business may choose to add as a rider to the business property and casualty insurance policies.  Business interruption insurance is used to replace lost income and expenses when businesses are forced to close due to any peril listed in the policy.  The most common perils covered by the insurance are fire, theft and wind damage related to weather events.   Most policies specifically exclude losses incurred by communicable diseases, but some policies will cover business closures due to government mandates such as required shutdowns.   Therefore, it is possible that the government-forced shutdowns related to the coronavirus may be covered by business interruption insurance, but not all policies will provide coverage.  If the coronavirus and/or the government mandates related to the virus are covered perils and you are unable to provide your services or goods to customers, you may be able to claim reimbursement for items such as:   lost profits (revenue minus expenses) which you have lost due to the inability to provide goods and services, business taxes due, rent payments, and employee wages which would have been paid to your employees if your business were operating.  In many cases, business interruption coverage will only apply to direct physical losses and damage to property.  It remains to be seen if a coronavirus-related business interruption, such as loss of revenue, will be considered a direct physical loss. 

For all types of business insurance policies, the ultimate scope of coverage will depend upon the specific language of each insurance policy, its exclusions, and the factual circumstances of the claim. Business owners should review their policies now to determine what coverages are currently in place and what might be needed in the near future.

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