Anita Byer, president of Setnor Byer Insurance & Risk in Plantation, Florida. Courtesy photo.
The economic impact of coronavirus disease 2019 (COVID-19) is spreading like the virus itself. As the financial effects trickle down from global organizations to regional and local businesses, many are asking whether losses caused by COVID-19 are or will be covered by insurance. This isn't an easy question because standard commercial insurance policies are not generally designed to protect against people getting sick. However, standard policies may provide limited coverage under the right circumstances.
Scenario 1: Employee contracts COVID-19
Workers' compensation insurance generally covers occupational injuries and illnesses that arise out of work performed in the course and scope of employment. Employees contracting COVID-19 may be covered by workers' compensation insurance if they were initially exposed to the virus in the workplace or while working. But, an employee's employment, and the resulting exposure, must be the major contributing cause of contracting COVID-19.
Workers' compensation coverage would likely turn on whether an employee could establish a causal link between their employment and their exposure to COVID-19. This may be harder for some employees than others. Those working in the health care industry, for example, may find it easier to establish the causal link than those whose employment does not clearly subject them to a greater risk of exposure than that to which the general public is exposed.
Scenario 2: Business operations interrupted due to COVID-19
Closed manufacturing facilities, quarantined workers, travel restrictions and the temporary suspension of imports and exports are just a few ways that a pandemic can disrupt crucial supply chains. The resulting disruption or interruption of operations poses perhaps the greatest financial risk to many businesses. Business interruption insurance, which replaces lost business income when a covered property loss causes a business to reduce or suspend its operations, may sound like the perfect solution, but it really isn't.
Business interruption coverage is triggered when a covered peril causes damage to covered property. The damage must be sufficient to render the property unusable in its current state. A standard policy, for example, would cover lost business income if operations are interrupted because the manufacturing facility is destroyed by fire. Coronavirus-related claims are unlikely to cause the property damage needed to trigger business interruption coverage. Even if facilities (offices, warehouses) or inventory (raw materials, fish, produce) are rendered unusable by COVID-19 contamination, business interruption coverage would be unlikely because standard policies typically contain exclusions for bacteria, viruses and other pollutants.
Supply chain insurance is an option for businesses wanting broader business interruption coverage. Policies can be written to name specific suppliers, manufacturers, etc. and to cover negotiated perils, including pandemics. Unfortunately, the breadth of coverage provided by supply chain insurance comes at a cost. Policy premiums are often cost prohibitive, particularly for smaller businesses.
Scenario 3: Cancellation of business-related travel
Pandemics naturally stifle travel abroad, particularly to high-risk areas. Travel insurance is designed to limit financial losses caused by various travel-related risks. Trip cancellation coverage, for example, reimburses pre-paid, nonrefundable travel expenses if a trip is canceled for a reason that is covered under the policy, such as an injury, illness or death involving you, a family member or a travel companion. Some insurers offer "cancel for any reason" coverage that should respond to pandemic-related cancellations. However, it's important to note that travel insurance does not cover "disinclination to travel" cancellations caused by fear or concern over what might happen while traveling abroad.
Scenario 4: Cancellation of a business function or special event
Event cancellation insurance, as its name implies, is designed to cover circumstances beyond your control that necessitate the interruption, abandonment or cancellation of a business-related function or event. Unfortunately, it's too late now to purchase coverage for cancellations prompted by COVID-19. Policies issued prior to the outbreak, however, may cover cancellations, at least for now. Insurers are expected to add exclusions for pandemics and communicable diseases as policies renew.
Scenario 5: Liability for negligently exposing others to COVID-19
Standard commercial general liability policies would likely respond to third-party claims regarding the negligent release of or exposure to COVID-19.
Despite the potential for limited insurance coverage, it's worth noting that standard commercial insurance policies are not designed to cover the spread of contagious diseases like COVID-19 or the flu. And, depending on the severity and duration of the COVID-19 outbreak, insurance companies are likely to add exclusions that eliminate the possibility of any coverage for COVID-19 claims. As a result, most businesses will not be able to rely on their standard insurance policies to adequately protect against coronavirus-related losses.
Anita Byer is the president of Setnor Byer Insurance & Risk in Plantation, Florida.
For more coverage on the coronavirus and its insurance implications, visit our Instant Insights page, "The coronavirus and its impact."
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