The World Health Organization has labelled novel coronavirus (COVID-19) a pandemic and the global number of confirmed cases of COVID-19 has surpassed 150,000. Companies suffering losses that they believe are attributable to COVID-19 or desiring to seek insurance to potentially cover losses resulting from COVID-19, should discuss these issues with their insurance broker(s) and risk manager(s) to assess the extent of coverage available. While the exact legal duties owed by insurance brokers to their clients vary from state-to-state, brokers are typically required to use at least reasonable care, diligence and judgment in procuring the insurance coverage requested by an insured.
Generally speaking, multiple factors affect whether a loss would be deemed covered by insurance, including the circumstances surrounding the loss, the type of loss, the type of coverage, and the terms, conditions and exclusions set forth in the policy. Care should be taken to carefully examine the policy as viruses and diseases may not be an insured peril and may be expressly excluded by the policy. Examples of lines of insurance coverage that may be implicated by the coronavirus include:
Business Interruption Insurance
Business interruption insurance covers business income losses directly caused by a covered peril. This coverage is generally sold as an add-on to a Company's underlying commercial property insurance. To be covered, a claim needs to fit within the designated cause of loss in the policy, which is typically defined to include disasters such as fire or earthquake. Business interruption insurance also generally requires a "direct physical loss" to insured property. Business interruption alone without physical damage to property is not enough.
Some policies may provide contingent business interruption insurance arising from disruptions in the supply chain due to a designated cause of loss. Contingent business interruption coverage protects against losses resulting from interruptions in the supply chain, such as damage to third-party suppliers, distributors or customers, that the insured depends upon for its business.
Some insurance carriers may offer specialized business interruption insurance products that could apply. Companies concerned about coverage for COVID-19 should discuss with their insurance brokers the availability of pandemic-specific coverage. Certain policies also extend "civil authority" business interruption coverage for losses arising from orders from a governmental authority that impair or prohibit access to an insured's premises or property as a result of physical damage. Voluntary shut-downs without a governmental order will likely not fall within the scope of this coverage.
Event Cancellation Insurance
Event cancellation insurance is designed to cover losses resulting from events that are cancelled or postponed due to circumstances beyond the insured's control. As concerns over the spread of coronavirus have increased, an increasing majority of large events and conferences have been cancelled, postponed or moved online. Coverage for coronavirus-related claims will depend upon the terms, conditions and exclusions in the policy. Exclusions in the policy may very likely exclude losses resulting from communicable or infectious diseases, viruses or pandemics, or may limit coverage to necessary cancellations caused by government order.
Global stock markets have tumbled due to fears over the coronavirus. Shareholder suits will inevitably follow. A company's directors and officers may be subjected to lawsuits that relate to the coronavirus in one way or the other, including disclosure-related claims or claims relating to alleged mismanagement in preparing for or responding to the coronavirus. Notably, Director & Officers (D&O) policies generally exclude claims for bodily injury. But policy exclusions may not preclude coverage relating to management-level liability linked to coronavirus, including for alleged deficient or misleading corporate disclosures or related to alleged management-level decisions or inaction. Coverage will depend upon the terms of the D&O policy, as well as the nature and allegations of the shareholder claim or lawsuit asserted against the company's management.
Some best practices for managing insurance considerations relating to coronavirus include:
- Review insurance policies to assess potential coverage for coronavirus-related losses. Coverage will depend upon the specific policy language and the factual circumstances at issue.
- Consider discussing coverage-related issues with your company's risk manager(s) and/or insurance broker(s).
- To the extent an insurable business loss is suffered, make sure to provide adequate notice to the insurer according to the notice requirements specified in the insurance policy.
- Collect and preserve evidence of business losses and damages.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.