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Many business owners are asking the question, “Is COVID-19 covered by business insurance coverage?”COVID-19 is causing significant disruptions and losses to businesses worldwide. 

Currently, schools are shut down for the remainder of the school year, public gatherings are prohibited, and restaurants are limited to takeout only service. The loss of income due to business closures, disruption in the supply chain, and decrease in individuals’ everyday activities causes all businesses to pursue insurance coverage through business interruption procurements common to commercial property insurance. 

Business Insurance Coverage Under First-Party Property Policies

The majority of businesses’ first-party insurance property policies include coverage for property damage and loss of profits due to damage as well. 

The coverage for lost income typically covers the loss that results from: 

  • Property damage to policyholder’s property (Business Interruption)
  • Property damage of customers, suppliers, or the person that supplies the supplier. (Contingent Business Interruption) 
  • Government orders, such as shelter in place, evacuation orders, etc. (Order of Civil Authority) 
  • Damage to properties that draw customers to the policyholder’s business. (Leader Property) 

 Any of the events that prompt this coverage is considered property damage – without this, there is no coverage for loss of profits under a first-party property policy. 

The critical questions concerning property insurance coverage for coronavirus-related loss’ are whether the small proximity of the virus can cause or aggregate property damage and whether such impairment played a role in the loss of income to the businesses. 

 

Non-structural Property Damage 

To date, it has not been reported that COVID-19 caused any physical damage to properties since it is said that the virus transmits through the air or touching surfaces that are infected. 

This means that the virus can be present in buildings, airplanes, trains, watercraft, enclosed spaces, and outdoor surfaces. In similar circumstances, courts find that the appearance of harmful substances can constitute “property damage” that prompts first-party property coverage. 

 

The Possible Range of Contingent Business Interruption

A substantial part of the losses endured by American businesses will be categorized as a contingent business loss – loss caused by damage to the supplier or customers. Many companies within the county have reported the loss of suppliers overseas and the loss of customers. 

Supply chain losses are anticipated to increase as the disease spreads within the country, affecting the domestic customers are suppliers. The suppliers whose property damage prompts contingent business interruption coverage may not be confined to the manufacturers or distributors of goods. 

To qualify as a “supplier,” it is not required that the policyholder have a supply agreement with the third party.

Protection Against Coverage

There are a variety of defenses that may allow insurance companies to avoid or limit payment to policyholders for the losses originating from COVID-19. 

  1. Some business insurance policies contain general property damage exclusions caused by natural factors. These exclusions are found in standalone provisions or are incorporated into pollution or contamination exclusions. Vice versa, some insurance policies provide coverage for damages due to disease or partially exclude damage and cover the presence of bacteria but not viruses. 
  2.  Many insurance policies contain a liability limit for some of the coverages included above, require waiting periods before the coverage is prompted, or possibly both.   
  3. Even if the presence of COVID-19 is considered property damage, often element coverages cover only the actual period of time that is required to repair the damaged property.    

Insurance companies argue that the virus survives for a short time and that an expeditious cleaning is the only thing needed to disinfect and restore the property. However, if the virus continues to spread in an area, re-contamination is likely and would extend the coverage period. 

Moreover, many insurance policies provide an extended period of business interruption coverage to allow businesses to resume back to normal operations after repairs are completed.    

 

Business Loss Relief and Additional Expenses

Business insurance policies demand policyholders the responsibility to mitigate property loss and requires the insurance company to pay for those efforts. 

Loss mitigation coverage is prompted by actual loss, damage, or injury. This coverage does not apply to preventative measures taken to avoid this possible loss. However, once a loss or injury is initiated, the efforts to restrain it – closures or costs acquired to make additional arrangements for employees – may be covered. 

Additional added expenses acquired for safer production and product delivery or services may also be covered in the loss mitigation coverage. As COVID-19 spreads, policyholders need to understand the coverage they have. Understanding the coverage allows business owners to keep accurate records of loss, ample time to notify their insurance companies, and preparation to seek coverage. 

Strategic Claim Consultants is a public adjusting firm focused on helping businesses with their claims or potential insurance claims. Not sure where to start? Strategic Claim Consultants are here to help. As certified public adjusters with years of experience, we can help you get the compensation you deserve. Contact us now so that we can understand your needs.