Insurance Policies that Can Help Businesses with COVID-19 Losses

Dani Milton
March 30, 2020

The novel coronavirus-19 has had a cataclysmic impact on corporations, nonprofit organizations and small companies throughout the United States. In many states, this invisible, highly-transmittable pathogen made business communities come to a standstill.Across the country, local authorities ordered bars, restaurants, shops and other companies to shut their doors during this public health emergency. The pandemic has caused revenue streams for successful businesses to dry up overnight. Owners have reluctantly given workers their walking papers because they don’t have enough money to pay their salaries.Hedge fund manager Paul Tudor Jones said COVID-19 has detonated a shock similar to a nuclear bomb in the business world. Although Jones expects the markets to bounce back, it may take years for most companies to recover from the fallout.How can business owners weather this turbulent time? Business owners may be able to turn to their private insurance coverage to help with the novel coronavirus’ impact. In today’s guide, we’ll tell you about some policies you can use to deal with COVID-19-related issues at your business.

Which Insurance Policies Can Help My Business during the COVID-19 Pandemic?

In late March, Congress passed the $2.5 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. This massive stimulus package includes three loan programs to help struggling companies, including a $350 billion program for small businesses with fewer than 500 employees. You can learn how to apply for these loans through the Small Business Association’s Coronavirus (COVID-19): Small Business Guidance and Loan Resources.Although this fiscal package is beneficial, it is expected come too late to save many small business owners. Impacted companies may be able to turn to their private insurance policies to help with financial losses and other liabilities that arise from the COVID-19 pandemic. Four types of business insurance coverage may provide relief, such as: Business Interruption Insurance

  • General Liability Coverage
  • Directors and Officers Insurance
  • Workers Compensation Coverage

Whether insurers pay these claims will depend on the policy’s language, circumstances and state laws. Policyholders should read the contractual terms, or seek legal advice, to determine whether their insurance can potentially cover COVID-19-related losses.

Different Business Interruption Insurance Policies That May Help During the Pandemic

There are four kinds of business interruption policies that may provide some relief for your business, provided you bought your policy before the pandemic. These include:

  • General Business Interruption Coverage
  • Contingent Business Interruption Insurance
  • Off-Premises Business Interruption Coverage
  • Civil Authority Coverage

Although it is probably too late to buy Business Insurance Interruption Coverage to help with COVID-19-related financial losses, you can still buy this coverage to help with future emergencies and pandemics. You can use SmartFinancial’s website to shop for affordable plans in your area as well as compare rates and coverage with different insurers.

1. General Business Interruption Insurance May Cover Some Losses Related to COVID-19

Standard insurance policies may contain some coverage for disruptions caused by the coronavirus. General business interruption insurance helps a policyholder’s operations when they are directly impacted by the COVID-19. It replaces revenue that the company lost after suspending operations. Typically, covered catastrophes include fires or natural disasters such as floods, hurricanes or tornadoes.Insurance companies don’t offer these policies as separate coverage; instead, they bundle them in property/casualty policies or comprehensive package plans. Usually, the insured is eligible to file a claim when the business incurs direct physical losses or damage resulting from the interruption. Policyholders won’t receive settlements that exceed the limits stated in the terms. Additionally, the coverage only lasts until the business interruption period ends.Not all insurance companies provide equal coverage for their policyholders. Whether these policies are triggered depends on the policy. For example, each insurer defines the “suspension of business operations" differently. Some define it as a “necessary suspension.” According to the National Law Review, a majority of legislative rulings have interpreted this term as requiring a complete stoppage of business operations before the insurer pays out. If your employees are working remotely, you may not be eligible for a claim settlement, even if you’re experiencing losses.

Other insurers define business interruption as “necessary or potential suspension" or “necessary interruptions of business, whether total or partial.” This phrase means the business doesn’t have to completely shut down for the policyholder to be covered. Your insurer will decide whether your facility is completely inoperational or partially unusable due to the pandemic. They may cover some costs if your company shut down because of the virus. Unfortunately, most general business interruption policies don’t specifically mention coverage for COVID-19 or pandemic-related losses.

Business owners should conduct a review of their property insurance to see what kind of coverage it offers. Usually, more expensive policies will offer better coverage, including indemnification against events like COVID-19. Also, check your business interruption insurance terms for any policy exclusions that may prohibit coverage for infectious diseases. Insurers began including these exclusions after epidemics like Severe Acute Respiratory Syndrome (SARS), Middle East Respiratory Syndrome (MERS- CoV), Zika and Ebola.

Some states, like New Jersey, have passed legislation to prohibit these exclusions. These laws require insurers to cover business interruption losses resulting from the COVID-19 pandemic regardless if they have these exclusions in their policies.

If you’re unhappy with your insurance plan after conducting a policy review, visit SmartFinancial to find affordable business insurance coverage that better suits your company’s needs.

2. Contingent Business Interruption Coverage

Contingent business interruption coverage is another insurance policy that companies may rely on to protect themselves against indirect losses caused by COVID-19. This coverage is available as a rider in a standard property insurance policy and will protect you if/when someone in your supply chain can’t perform their job due to a covered loss that impacts or interrupts your business.

Instead of requiring a policyholder to have a direct physical loss, these policies respond to losses that impact a company’s supply chain; for example, if a company’s supply chain slows down due to problems nationally, internationally, or in NAFTA free trade areas. Covered interruptions can include stoppages in China, Europe and the United States. Unfortunately, this coverage usually requires that suppliers or customers suffer some physical damages because of a hazard before claims are paid.

Many businesses around the world have endured severe impacts and supply chain shortages due to the COVID-19 pandemic. You’ll need to check your property’s coverage to learn if you have contingent business interruption coverage and what it covers.

3. Off-Premises Business Interruption Coverage

This coverage protects a business if it must interrupt its operations due to service disruptions of electricity, water, sewage, communications or gas. Some companies may face service issues because of COVID-19’s impact on the service workforce, although there are very few outages related to the pandemic yet.

4. Civil Authority Coverage

Another business interruption insurance that may help cover COVID-19-related income losses is Civil Authority Coverage. Insurers include this coverage on many property policies to protect companies when they cannot run their operations due to orders issued by local, state or federal governments. Some policies have limits, but you may be able to use this coverage even if your premises are not considered an “infected area” due to COVID-19. Earlier this year, insurance companies began developing COVID-19 civil authority policies that offered limited and optional coverage. They covered situations in which governments and health departments halted business activities to prevent the virus’ spread.

Each policy has different terms regarding the amount and duration of coverage. Insurers usually pay when businesses can prove a direct link between the civil authority’s actions and the owner’s financial losses. Some insurers will only pay if premises are damaged by a cause listed in the policy. Others extend coverage to broad situations, for example, when a civil authority restricts, prohibits or denies access that stops a company’s operations.

Does your business already have this coverage? If so, you may be able to file a claim if your business lost revenue because a civil authority forced your business to shut down your establishment to contain COVID-19.

Commercial General Liability/Professional Liability Can Protect Businesses against Third-Party Lawsuits

Commercial General Liability and Professional Liability policies may also help indemnify companies against COVID-19 related losses. Companies may use their CGL insurance or PL policies to protect themselves against negligence lawsuits. These policies may offer business owners protection if they have acted in a potentially negligent manner during this pandemic. Business owners can use this insurance to protect themselves from potential claims during the COVID-19 crisis.

CGL insurance pays for settlements and legal claims made against policyholders that caused bodily harm or personal injuries to customers. For example, this coverage may pay for medical expenses someone suffers during a slip-and-fall accident due to unsafe conditions. They can also cover claims when a business makes a product (or service) that physically harms a person.

Commercial general liability coverage may shield some business owners against third-party claims that arise from the COVID-19 pandemic. These policies usually cover bodily injury and property damage under Coverage A, and personal injuries (such as false imprisonment) under Coverage B. The law defines “property damage” as physical injuries to tangible property, and the lost use of this property that wasn’t physically injured.

Businesses may be able to use Coverage A if they didn’t take enough precautions to prevent the spread of COVID-19 on their property, which caused bodily injuries to their customers or patrons. Coverage B may help with false imprisonment lawsuits related to COVID-19 stay-at-home orders.

When customers sue businesses for failing to take precautions to prevent COVID-19 transmission, they can turn to their CGL policy; however, some CGL policies exclude injuries caused by viruses or bacteria so it’s important to review your policy before filing a claim. Many insurance companies offer this coverage to industries that are more susceptible to contagious disease outbreaks (such as restaurants, hotels, and event centers). Many insurers now offer these policies as optional coverage, since the hospitality industry has demanded these plans.

Directors and Officers Insurance (D&O) May Provide Some Relief

Some businesses may be at risk of securities-related lawsuits after they have revealed the impact of COVID-19 on their business. Some shareholders may sue a company’s executive leadership, claiming they mismanaged its business operations during the pandemic.

Right now, the U.S. Securities and Exchange Commission has kept tabs on the pandemic's impact on the markets, investors and publicly traded companies. Earlier this month, the U.S. Securities and Exchange Commission (SEC) offered guidance to businesses with shareholders and investors about COVID-19-related impacts and risks. Non-public companies may also consider their Directors and Officers (D&O) insurance to provide them some indemnity against pandemic claims. These policies usually provide broad liability coverage for organizations.

Normally this insurance is generally limited to securities claims, but for nonpublic companies, this coverage usually includes lawsuits brought against organizations that are not otherwise excluded. It may be valuable for non-public companies who may face a volume of suits resulting from the COVID-19 pandemic.

Some policies have bodily injury clauses and pollution exclusion clauses, but these may not apply to some COVID-19 related-cases.

Speak with your insurer about the terms of your Directors and Officers Insurance. Ask your attorney to review its conditions to learn if this policy can cover COVID-19 related losses.

Worker’s Compensation Can Help Employees

Workers' compensation policies are state-run insurance programs that cover occupational diseases and injuries specific to a trade or occupation.

Their statutes usually exclude the “ordinary diseases of life,” like the common cold or flu, which can be caught by the public. There are some situations when these policies will cover ordinary diseases if you can prove a direct connection between the workplace and the circumstances that led to the occupational disease.

For example, some professionals have a higher probability of coronavirus exposure on the job. These include healthcare workers, firefighters, law enforcement and other emergency responders. According to the Society for Human Resources Management (SHRM), there is still no guarantee (outside the state of Washington) that Workers’ Compensation policies will cover these professionals if they catch COVID-19.

The coronavirus spreads through respiratory droplets and is highly contagious. It is so dangerous that many workers need personal protective equipment (PPE), and some first responders need hazmat suits to help patients. These policies usually pay for wage replacement, covered expenses for medical treatments, vocational rehabilitation, and other benefits. It’s still not certain whether state WC programs will pay for coronavirus-related claims. Employees must prove they were exposed in the workplace, rather than a public setting. The workplace must be deemed “an infected area.”

Right now, it may be beneficial for companies to conduct a review of all the insurance policies they currently have with the help of an insurance attorney.

If you need a policy with better coverage, you can trust SmartFinancial to help streamline and simplify the process. Our technology provides customized insurance offerings based on your zip code. We can match you with a partnering insurance agent from our vast network of knowledgeable insurance professionals. All you need to do is fill out our simple three-minute questionnaire to start the process.

Get a Free Commercial Insurance Quote.

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