Risk & Business Magazine Spectrum Insurance Spring 2020 | Page 5

COVID-19 IMPACT
T
he new coronavirus
(COVID-19) outbreak
continues to be a top-
of-mind concern for
organizations and
individuals across the globe. As
COVID-19 becomes increasingly
widespread, it’s not only raising
fears about the well-being of the
general public, but it’s also disrupting
business operations and creating
insurance exposures.
In fact, COVID-19 has already led
to business interruptions, supply
chain issues, and significant liability
concerns—all of which can open
policyholders up to claims. As
such, it’s important for companies
to understand how COVID-19 can
impact their insurance policies,
review their existing coverage, and
determine what precautions they
need to take in order to control their
losses.
This article examines potential
insurance exposures associated with
COVID-19 and how different forms
of coverage could respond.
BUSINESS INTERRUPTIONS
As many operations close due to
COVID-19 fears, there’s a growing
question of whether or not business
interruption insurance can help
policyholders make up for lost
revenue.
In the event of a loss, business
interruption insurance provides
coverage for income a business would
have earned had it been operating
normally. It can also help pay for
expenses like employee wages, taxes,
rent, loan payments, and relocation
expenses.
Typically, business interruption
insurance is triggered by a direct
physical loss or damage. Under this
interpretation, contagious diseases
like COVID-19 would not count as a
covered loss.
However, some argue that COVID-19
can contaminate physical objects
like HVAC systems or assembly lines,
which in turn would force businesses
to cease operations. In these scenarios,
business interruption insurance
could provide some protection. Still,
insurers may push back, making
coverage unavailable.
As with any loss, policy wording is
critically important and could make
all the difference when it comes to
responding to claims. Policyholders
should review exclusions and
endorsements alongside a qualified
insurance broker to ensure they have
the coverage they need.
SUPPLY CHAIN ISSUES
Business interruption insurance
is a crucial component of risk
management programs, but it does not
extend to disruptions to a third party.
That’s where contingent business
interruption insurance (CBI) comes in.
Unlike traditional business
interruption insurance that
compensates the policyholder for a
loss resulting from damage to its
own property, CBI lets businesses
transfer the risk of certain losses
to the property of a third party.
CBI is an optional extension of
business interruption insurance
that reimburses lost profits and
extra expenses resulting from an
interruption of business at the
premises of a customer or supplier.
This type of coverage is increasingly
important as COVID-19 continues
to affect the global economy. Even if
a business is not located in an area
where COVID-19 has been detected,
aspects of their supply chain might
be, leading to potential disruptions.
In fact, in China—where COVID-19
originated—many workers have been
ordered to stay home, forcing some
manufacturers to halt operations.
Without access to the products or
components they need, businesses
that partner with these manufacturers
may also have to stop distribution.
While CBI could provide coverage
in this scenario, there are caveats.
With CBI, the covered third-party
property may be specifically named,
or the coverage may simply blanket
all customers and suppliers. Insureds
will have to review policy language to
ensure their suppliers are included in
the policy.
Additionally, similar to traditional
business interruption policies, some
form of property damage will need
to occur before coverage is triggered.
Again, contamination may qualify as
property damage depending on the
policy language and insurer.
LIABILITY CONCERNS
COVID-19 raises a number of liability
concerns, particularly if guests,
customers, or employees allege they
became sick due to a business’s
negligence. When it comes to these
concerns, it’s important to take the
following insurance considerations
into account:
•
General liability insurance—
General liability insurance,
sometimes referred to as
commercial liability insurance,
protects your business from
financial loss should you be
liable for property damage
or personal and advertising
injury caused by your services,
business operations, or
employees. It can protect you
from costs associated with
bodily injuries, damage to
third-party property, personal
injuries, medical expenses,
litigation, and more. When it
comes to COVID-19, general
liability policies should
provide coverage and allow
you to defend claims. It should
be noted that, in order for a
claim to be valid, the claimant
would have to allege the virus
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