With COVID 19 (Corona Virus) news sweeping the world, business insurance clients are asking their carriers about potential coverage for loss of business. Is there any? The short answer is “probably not.” While every type of business faces different risks, the main concern was initially from restaurants, hotels, and entertainment venues that are forced to close due to government mandate. As the economic impact ripples nearly all businesses will face some decrease in income. While most business insurance policies DO provide coverage for loss of income, this coverage is only triggered by covered property damage to property insured on the policy. This means that explosions, fires, car accidents, tornadoes, and other catastrophes that damage property do trigger coverage but a mandated closure because of a possible future event does not. And if that future event is a sickness, that does not damage any actual property, there is no coverage.
Some policies do cover lost income when business are ordered to close because of a disaster but again, these clauses are only triggered by damage from natural disasters of the type that the policies normally cover. While there is no apparent coverage from a plain reading of the policy forms we DO encourage any clients experiencing a loss of income they think may be covered to call us and we WILL file any loss of income claim presented to us whether we think there may be coverage or not. As agents we are not the party that ultimately decides or pays claims.
Who is most at risk for lost income? At first it was restaurants, hotels, and entertainment venues. But the economic impact from mandated closures, rationing, and stockpiling is already affecting our clients across nearly all lines of business.
Are any new insurance products in development? The organization that drafts many of the coverage forms used by standard carriers has discussed an endorsement that carriers could choose to adopt that extends a very short period of income coverage for mandated closures due to COVID-19. At this point we are not aware of any companies offering this form and it seems unlikely that any would–at least while the pandemic is still raging. This is due to the high risk of inverse selection (insureds who already have a claim or are likely to have an immediate claim would purchase it) and the lack of information on how to price it.
Is there any precedent for this? The insurance industry has seen similar scares with past pandemics such as Avian Flu, SARS, etc. COVID-19 is different for many factors. In those cases coverage did not come in to play in most cases. At this point, it appears that the most significant economic impacts form COVID-19 will be from the drastic, but necessary response from civil authorities to prevent the spread (hopefully not from people actually becoming sick). In that regard, the closest precedent is the post-9/11 economy. The drastic response in limiting public gatherings is essentially choosing the lesser of two evils, and if it works, the economic impact will be felt for a long time but recovery should be possible provided the general public can resume large scale gatherings and normal economic activity can resume within a few weeks. If we enter a period of extended quarantine for months then there is no precedent in modern history with which to compare the present situation.
What should businesses do? The CDC and state governments are continually producing new guidelines and we encourage employers to check them often.