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Pandemics, viruses, and contagious diseases such as the Coronavirus (COVID-19), similar to recent history with the 9/11 attacks and Superstorm Sandy, will create a myriad of insurance coverage claims. The 9/11 attacks reportedly produced insured losses of approximately $40 billion, and approximately $26 billion for Superstorm Sandy. These claims included ones for property, business interruption, and workers’ compensation. The financial impact of the Coronavirus won’t be known for months, possibly even years, but expect that it will be in the billions. As the losses continue to increase, there is a flurry of questions on whether insurance coverage is available, especially under policies with business interruption coverage.
Generally business interruption policies insure for a loss of business income stemming from damage, destruction or disruption to the property (not to the property itself which would potentially be covered under a property insurance policy). Typically, this coverage extends to damage caused by natural disasters, such as earthquakes, fires or floods. For example, commercial property policies generally require business interruption loss to be tied to a designated peril, and a “direct result” of physical loss or damage to the property.
When a business suffers interruption due to a pandemic, the “physical damage” requirement may not be met. Is there physical damage when someone infected with the Coronavirus sneezes, coughs or touches the property, and remediation is required? Attorneys are split down the middle and have varying viewpoints on this very issue. What about when there is no physical damage? There seems to be a consensus that if the property is simply closed as a precautionary measure, this does not constitute physical damage and, therefore, there is no coverage.
But then there are other policies that may provide coverage when there is no direct physical damage. These policies, usually by the addition of a specific endorsement, provide coverage for interruption by civil authority. However, these generally do not apply unless the civil order specifically prohibits access to the insured’s property. The majority of businesses that have closed or suspended a portion of their operation have done so, not because of physical damage or a specific order, but as a form of social distancing to prevent the spread of the Coronavirus.
The financial impact that the Coronavirus has caused worldwide will certainly lead businesses to look to their insurance policies to mitigate their damages, and insurance coverage disputes will follow. Whether there is coverage under various policies will depend on the terms and conditions of each policy, and likely expert testimony on whether the virus caused some form of physical damage. Insurers should proactively review their insurance policies and prepare for the onslaught of lawsuits that will most certainly arise.
