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Insurance and the Pandemic
Business Interruption Coverage
This spring, in response to the rapidly spreading virus about which little was initially known, state governments responded by limiting the activities of some businesses and closing others altogether. Business owners who were faced with massive losses of revenue began to question whether or not business interruption insurance coverage would cover income lost to the pandemic-related closures.
The short answer is that closures due to pandemics and other types of widespread events are not covered as business interruptions under most business insurance policies. Those policies are intended to cover business closures due to more specific perils such as a fire or tornado loss which causes physical damage that necessitates a closure. Pandemics or viruses are often specifically excluded as something that affects the whole county or state rather than just one particular business or a small area. Of course, individual policy language determines whether there is coverage or not.
Some government officials or lawmakers have called for insurers to be required to pay for lost income caused by pandemic-related closures. However, insurers have not collected premiums for risks that were not covered under the policy. Payments for losses for which no premium was collected would be financially devastating for insurers. This would be like forcing auto insurers to pay for regular automotive maintenance repairs under an auto insurance policy that covers collision or comprehensive losses. Even if such losses could be paid, the amounts paid out would result in astronomical increases in future business premiums or maybe even affect the availability of that type of coverage.
Some resources for further reading about business interruption coverage can be found here:
- The True Cost of Rewriting Business Income (Interruption) Policies (III)
- NAIC Statement on Congressional Action Relating to COVID-19 (NAIC)
- Legislation to Nullify BI Exclusions Poses Existential Threat to P/C Insurers (AM Best)
- Commercial Insurance and Business Interruption Coverage in COVID-19 (APCIA)
- Business Interruption Insurance (NAMIC)
- COVID-19 Business Interruption Talking Points (RAA)
- COVID-19 Business Interruption Legislation Tracking (RAA)
- IAIS facilitates global coordination on financial stability and policyholder protection during Covid-19 crisis (IAIS)
- Politicians Target Insurance Contracts (WSJ Editorial)
Many have suggested that the federal government could “backstop” insurers and reimburse them for claims paid that would not otherwise be covered. A better idea would be a program in which governments would reimburse businesses directly for losses that were caused by government actions. You can read more about these ideas here:
- Joint Trades COVID-19 Business and Employees Fund Letter
- Insurance Groups Team Up on Federal ‘Business Continuity Protection Program’
Business Liability Protection
There is a concern that businesses which will reopen, or those which have been able to stay open, may face lawsuits by those claiming that they suffered damage by contracting the virus at that business. As a result, some states have already proposed legislation that would establish standards for recovery that would offer businesses some protection from liability when operating during a pandemic unless the business was grossly negligent, reckless, or intentionally caused the harm. Bills have been filed providing limited immunity in OH, NC, and elsewhere. Some additional resources are available here:
Individual states and the federal government will likely be looking at this type of legislation in the months to come in addition to many other pandemic-related proposals.