In light of the increasing restrictions imposed in response to the Coronavirus outbreak, businesses are grappling with the possible loss of revenue that will result. Of course, while economic urgencies should take a back seat to the protection of human health; they should not be ignored. May businesses rely upon their insurance to protect them from losses due to the Coronavirus outbreak?
Business Interruption Coverage
In general, Business Interruption insurance covers loss of income suffered by a insured when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations. Coverage applies to loss suffered during the time required to repair or replace property, which may, depending on the policy, include loss of use. There are two Insurance Services Office, Inc. (ISO) insurance forms: the business income and extra expense coverage form (CP 00 30) and the business income coverage form without extra expense (CP 00 32).
Business interruption coverage often protects against direct physical loss such as a fire, flood or earthquake, and may extend to other types of loss. ISO Form CP 0030 provides:
We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.
The amount of loss will be determined based on:
(1) The Net Income of the business before the direct physical loss or damage occurred;
(2) The likely Net Income of the business if no loss or damage had occurred, but not
including any Net Income that would likely have been earned as a result of an increase in
the volume of business due to favorable business conditions caused by the impact of the
Covered Cause of Loss on customers or on other businesses.
(3) The operating expenses, including payroll expenses, necessary to resume
“operations” with the same quality of service that existed just before the direct
physical loss or damage; and
(4) Other relevant sources of information, including:
(a) Your financial records and accounting procedures;
(b) Bills, invoices and other vouchers; and
(c) Deeds, liens or contracts.
Business owners must check their policy, as many forms include limitations on payroll expenses for certain classes of employees and time limitations on the payment of payroll expenses. There is typically a 72 hour waiting period for coverage to incept, and coverage is limited to particular time periods in some instances. This form may also include coverage for Extended Business Income, Computer Operations, Alterations and New Buildings, and Civil Authority. Many business interruption policies typically include an endorsement excluding viruses and/or epidemics.
The insurance industry is responding to the coronavirus epidemic. In February 2020, ISO developed two new endorsement forms addressing limited coverage in response to certain civil authority orders relating to Coronavirus. These forms provide coverage for actual loss of business income and extra expenses caused by a government order closing the insured’s premises or quarantining all or part of the premises and from government suspension of some modes of public transportation.
Notice to Insurers
The insured business must see that the following are done in the event of a covered loss:
1. Notify the police if a law may have been broken.
2. Give prompt notice of the direct physical loss or damage. Include a description of the property involved.
3. As soon as possible, give a description of how, when, and where the direct physical loss or damage occurred.
4. Take all reasonable steps to protect the Covered Property from further damage by a Covered Cause of Loss. If feasible, set the damaged property aside and in the best possible order for examination. Also keep a record of expenses for emergency and temporary repairs for consideration in the settlement of the claim. This will not increase the Limit of Insurance.
5. As often as may be reasonably required, permit inspection of the property proving the loss or damage and allow examination of books and records.
6. Also permit to be taken samples of damaged and undamaged property for inspection, testing and analysis, and permit copies from books and records.
7. Send a signed and sworn proof of loss containing the information requested to investigate the claim. You must do this within 60 days after request. The necessary forms will be supplied.
8. Cooperate with the investigation or settlement of the claim.
9. If you intend to continue your business, you must resume all or part of your “operations” as quickly as possible.
Do you have coverage? Importantly, many insurers, in the wake of past catastrophic events, have now excluded viral outbreaks from business interruption and other policies. Companies must proactively assess the specific terms and conditions of their existing insurance policies to determine whether interruptions and other losses caused by the Coronavirus outbreak would be covered. In addition, businesses should review their respective policies’ notice requirements to ensure timely and complete compliance with those provisions in the event the business must submit a claim. Taking these proactive steps will help businesses be prepared for any financial or legal implications that may result from the continued spread of Coronavirus. If you have any questions, or would like immediate assistance in reviewing how your insurance policies will apply in the event of an anticipated loss due to the Coronavirus, please contact JoLynn M. Scharrer at Scharrer@huntortmann.com