Coronavirus and Business Insurance Coverage

Since the discovery of Coronavirus (COVID-19) in January 2020, the disease, now considered a pandemic, has spread across the world and brings with it a big impact to businesses.

Many businesses have taken a proactive approach by finding alternative ways to conduct business. Colleges and universities are moving to online classes to avoid increased exposure for students and faculty, and other companies, such as Google, have advised their employees to work from home. In addition, many companies in the U.S. are suspending unnecessary business travel.

These decisions are wreaking havoc on many industries, such as hospitality and transportation, where for many employees working from home is not an option.

Restaurants have seen a fast decline in business as patrons opt to work from home and avoid social contact. Hotels and airlines continue to suffer as people continue to cancel or postpone trips. Delta Air Lines reacted to a steep decline in net new bookings by cutting service by 15 percent, including major cuts to their international flights. American Airlines announced that it would reduce international service by approximately 10 percent during the peak summer season and reduce domestic service by approximately 7.5 percent in April.

One of the industries hit the hardest by this pandemic has been the cruise lines. After the Centers for Disease Control and Prevention (CDC) and the State Department urged Americans to avoid cruise ships, the cruise lines have been in free fall, at a time when many Americans embark on vacations and spring break trips. Recently, the Grand Princess, operated by Princess Cruises and owned by Carnival Corporation & plc, had 21 passengers confirmed positive with coronavirus. The cruise line is facing not only a rapid decrease in revenue but faces a lawsuit filed by two passengers claiming the cruise line was negligent in their response to current and future passengers setting sail when two passengers on a previous cruise exhibited symptoms. Many passengers already aboard cruise ships have been forced into quarantine, remaining onboard, and will undergo medical screening at the port by the U.S. Department of Health and Human Services and the CDC

Business Interruption Insurance Coverage

As part of a company’s commercial property insurance policy, companies can purchase business interruption (BI) insurance which protects businesses against lost income sustained as a result of disruptions to their operations. Contingent business interruption (CBI) coverage provides insurance for financial losses caused by disruptions to the company’s customers or suppliers. In addition, other specialized insurance policies and extensions of coverage can be added to standard property insurance policies that provide insurance coverage for losses caused by “communicable or infectious diseases” without requiring physical damage to the insured property. This coverage is typically purchased by businesses in the hospitality and healthcare industries.

Are Epidemics Included Under Business Interruption Coverage?

Under most policies, business interruption coverage is triggered when the policyholder sustains “direct physical loss or damage to” the insured property by a covered cause of loss. While the coronavirus is disrupting many businesses’ operations and resulting in financial losses, businesses are not sustaining direct physical loss or damage to insured property by the disease. According to the  law firm Jones Day, “in the event of a claim for coronavirus-related business interruption, certain insurance carriers may dispute whether this ‘physical loss’ requirement has been met.”[1] However, courts in some jurisdictions have ruled that “contamination and other incidents that render the property uninhabitable or otherwise unfit for its intended use constitutes a ‘physical loss’ sufficient to trigger business interruption coverage.”[2]

Although the coronavirus is front and center in most people’s minds, businesses should evaluate their commercial property insurance policy and determine if business interruption coverage is needed for other reasons or events. As natural disasters occur, companies need to be prepared in the event their insured property is physically damaged, their business is negatively affected, and financial losses sustained.

Other Examples of Business Interruption Claims

As we approach another hurricane season, history shows that hurricanes have become more active over the last several years. The 2019 Atlantic hurricane season was the fourth consecutive year for above-average damaging hurricanes. Hurricane Katrina in 2005 and Hurricane Sandy in 2012 were two of the deadliest and most destructive for both homeowners and businesses, resulting in billions of dollars in property damages and economic impact.

Other natural disasters include fires, earthquakes, and tornadoes, among others. Earlier this month, an EF-3 tornado ripped through central Tennessee, about 20 miles east of Nashville, killing 24 people and destroying and/or damaging homes and businesses. For those businesses impacted, business interruption coverage can allow the company to recoup net profit that would have been earned if no physical loss occurred.

Local and regional disasters are not the only ones to fear. Businesses with supply chain operations out of China were likely impacted by the 2015 explosion at the Tianjin, China port. This is an example where having contingent business interruption coverage can help soften the blow.

Policyholders and insurance carriers often hire forensic accountants to assist in calculating the loss of business income covered under the business interruption policy.

How Windham Brannon Can Help With Your Business Interruption Claim

Windham Brannon is here to help. When quantifying a business interruption loss, we will:

  • Review the company’s operational financial records and insurance policy for coverage
  •  Consult with the company’s executives and attorneys
  •  Conduct interviews of key management, employees, vendors, and customers
  • Examine non-loss-related events and conditions that possibly affected sales during the loss period
  • Calculate damages attributable to the loss
  • Provide expert witness testimony, if necessary.

For more information and assistance analyzing your business interruption loss as you prepare to make a claim, please contact Natalie Lewis, or 678-510-2801.

[1] Time for a Policy Checkup: Maximizing Insurance Coverage for Coronavirus Losses, February 2020.
[2] Ibid.

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