The APDT Chronicle of the Dog Summer 2020 | Page 28

INSURANCE INSIGHTS
INSURANCE FOR CATASTROPHIES
Business income losses due to pandemic not likely covered
By David Pearsall, CIC, CWCA
Business Insurers of the Carolinas
As I write this briefing, we are smack in the middle of the COVID-19
pandemic. It has really taken a toll on so many pet care businesses
throughout our entire country. There have been so many questions
from pet trainers and pet service providers regarding insurance coverage,
looking for some financial relief and direction. So let’s discuss what is known
at this time about coverage for the virus, and also look at other types of
catastrophes such as wildfires, earthquakes, hurricanes, floods, etc. and share
how insurance coverage may or may not apply. And hopefully this pandemic
will be over by the time you are reading this article.
First, let’s begin with Business Income/Extra Expense (sometimes referred to
as Business Interruption coverage) and COVID-19. Business Income/Extra
Expense is a type of property insurance that provides loss of income suffered
by a business when there is direct physical damage to its premises by a covered
cause of loss. Unfortunately the APDT liability policy does not contain any
coverage for property or Business Income/Extra Expense, as most members
work from their homes and do not have a facility to insure, and do not derive
revenue from their facility, but rather by training dogs at their homes, or at
client’s homes or other places such as animal shelters or parks, etc. But if you
do have a facility that you lease or own, there typically must be direct damage
to your facility/premises before a policy would pay out. In addition, most all
Business Income policies contain a virus or bacteria or communicable disease
exclusion that negates coverage for COVID-19 as well.
Now that said, there will likely be many lawsuits that arise out of this pandemic,
and courts and/or governments will ultimately determine if any insurance
coverage should apply. So if you have a business owners policy or a property
policy for a facility that contains business income/extra expense coverage, I
do recommend turning a claim in as soon as you are aware of your loss, and
continue to track your losses, regardless if the insurance company initially
denies your claim. Be sure to hold onto your formal denial letter. It is important
to turn your claim in as soon as you are aware of loss, so the insurance company
cannot deny claim at later date due to failure to turn claim in promptly.
Although I am not very confident there will be any coverage, I am at the same
time very hopeful our government will give everyone the relief they need to make
it through, whether forcing insurers to pay or simply finding other ways to support
us all financially until we can get back to normal. This pandemic has affected
every type of business/industry in our country, from restaurants/bars, hotels,
airlines, even insurance agencies like ours who are seeing clients close their doors
and cancel their policies. If our state/federal governments do ultimately declare
insurers must disregard/void exclusions in their policies and pay the business
income losses, there will likely be a need for the government to then bail out
the insurance companies, as current reserves in the
industry are not large enough to cover the projected
losses of this pandemic, which (as of early April) are
estimated to be more than $300 billion a month.
Now let’s take a look at what Business Income/
Extra Expense was originally created to cover. If
you own or lease a training facility or boarding or
daycare facility, you likely have a property insurance
policy or Business Owners insurance policy to
cover damage that your building and business
personal property sustain due to covered causes of
loss (such as wind or fire or lightning, etc.). Most
Business Owners policies will also provide coverage
for Business Income/Extra Expense. So if you were
to suffer direct damage to your property due to a
windstorm (such as tornado or hurricane) or fire
or explosion, coverage would apply since there is
direct physical damage by a covered cause of loss
that is not excluded. Depending on your insurance
company’s business income coverage form and the
limit of coverage you purchased, you would typically
be paid for your loss of net income (net profit or loss
before income taxes) that would have been earned,
and continuing normal operating expenses incurred,
including payroll. The extra expense coverage pays
additional costs that are in excess of your normal
operating expenses that you incur due to the loss,
such as renting another facility while yours is being
rebuilt. The goal of coverage is to make your business
whole again, and get you back up and running as
fast as possible so that your business can continue
operating normally.
Unfortunately, not all catastrophic losses are covered
by business income/extra expense coverage, such
as the case with the current pandemic. Two more
common causes of loss we see most often excluded
on property policies and business owner policies
are floods and earthquakes. So if you live in an area
prone to floods or earthquakes you should consider
adding flood or earthquake property insurance to
cover your home or business facility. Hurricanes
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