The recent outbreak of COVID-19 is wreaking havoc on the health and financial stability of the public. This pandemic is affecting small and large businesses alike, and it’s leading to a lot of uncertainty over the future of companies and their employees. With the number of policies businesses require, one may wonder if there is anything that can be done to stave off the financial losses from the COVID-19 pandemic.
What Losses Are Businesses Facing?
On Sunday, March 15th, Governor Baker issued emergency orders limiting the gathering of twenty-five people or more and banning on-premise consumption of food and drinks at restaurants and bars. Needless to say, the food-service industry is currently taking the biggest hit, but several businesses are facing the inconvenience and expenses involved with moving operations remotely or moving a skeleton crew to a temporary location.
Breaking Down the Potentiality of Coverage
The most relevant additions to a business insurance policy come in the form of three specific coverages, all of which should be a part of any business’s insurance checklist:
- Business Interruption Insurance: Supplemental business interruption insurance will cover losses and prospective earnings resulting from property loss.
- Business Interruption and Extra Expense Insurance: This coverage is designed for businesses unable to cease operations despite property damages. Businesses are compensated for the expenses of performing operations off-premises as the property is undergoing repairs.
- Civil Authority Business Interruption Coverage: This will pay for the loss of business income and extra expense caused by the action of civil authority or damage to the property or the denial of entry to the premises from a government entity.
However, each of these coverages carries a provision stating compensation from a “direct physical loss,” posing the question…
Is COVID-19 Considered a Direct Physical Loss?
As it stands, business closures and loss of income resulting from employee sickness, sudden decrease in patronage, or orders to cease on-premise operations are not defined as direct physical losses and are thus uninsured. As COVID-19 is not currently considered a physical loss, it is unlikely to be covered by insurance. Nevertheless, some policyholders and plaintiffs are seeking to litigate coverage theories to better outline coverage and repel bankruptcy, such as a New Orleans restaurant filing a lawsuit against Lloyds of London, stating coronavirus contaminates surfaces and can be defined as “property damage.”
What is Being Done to Clarify the Coverage of COVID-19?
On March 10th, New York State Department of Financial Services (NYDFS) ordered commercial property insurers to send their policyholders an in-depth explanation of their benefits clearly stating the policyholder’s business interruption coverage concerning the coronavirus. The NYDFS has also ordered insurers to provide detailed information upon investment in these coverages, and they were informed this information might become part of the public record and be used in potential coverage lawsuits.
Unfortunately, the virus is having a devastating impact on business incomes, and whether business insurance can serve as a means to stave off losses as a result of the COVID-19 pandemic remains uncertain. In these challenging times, it can be easy to lose focus of your business’s long-term goals, so it’s important not to lose sight of the policies that can protect your business from other sources of disaster. At TJ Woods Insurance, we can answer your questions and match you with appropriate business insurance in the process. Contact us today for more information.
