COVERAGES
PROPERTY POLICY COVERAGE OVERVIEW FOR BUSINESS INTERRUPTION
Most property policies regardless of the carrier who underwrites the policy require “Direct physical damage or loss to Covered Property
caused by a Covered Peril” before Business Income and/or Civil Authority coverage can be triggered. As background, some examples
of covered claims we routinely see where Business Income coverage is provided are fires, wind/hurricanes (provided coverage was
purchased), water damage, vandalism where the actual premises was damaged by one of these covered Perils resulting in physical
damage to the property.
The coverage question before the insurance carrier community presently is whether a “virus contamination” constitutes physical
damage? Proponents representing policyholders are making the potential argument that the presence of the virus constitutes
covered physical damage. They are taking the position that the known presence of the virus at a location where an insured has done
decontamination efforts to control the spread meets this requirement. There have been prior court rulings that other causes of loss
have constituted physical damage to include air-borne asbestos fibers, and toxic gases from defective drywall where Business Income
coverage was provided. Likewise, the insurance community also has case law that non-structural damage events do not trigger
coverage and it is presently unknown how the insurance community will respond to COVID-19 virus claims.
VIRUS AND COMMUNICABLE DISEASE EXCLUSIONS
Beyond policies requiring “Direct physical damage or loss to Covered Property caused by a Covered Peril” for coverage to apply, many
policies also contain a Virus, Bacteria or Communicable Disease and Pollution exclusions which the carriers will argue that even if
Physical Damage caused by contamination is met, this Exclusion will negate coverage. This Exclusion is presently being
challenged mainly by governmental bodies as mentioned previously.
CIVIL AUTHORITY COVERAGE
Many policyholders will also look for coverage under the Civil Authority coverage for relief. Civil Authority coverage when
confirmed provides loss of Business Income to a policyholder when access to the insured’s premises is prohibited by
governmental authority due to a Covered Cause of Loss and is triggered by Physical Damage not necessarily at the insured’s
premises. Examples where this coverage would come into play is widespread Hurricane losses where the government has
closed access to an insured’s business. The question before the carriers is whether mandatory stay at home orders due to
COVID-19 will trigger coverage under Civil Authority? The insurance community is likely to argue that there is not direct
physical loss and the Virus/Contamination Exclusions may apply.
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