This is truly an unprecedented time in our country, as we all cope with the spread of the COVID-19 virus. We, at Illumination Insurance, hope that you and your family are safe and healthy during this trying time. As we have been in good times, and bad, we are here for you.
In order to fulfill our mission of being a one-stop resource for our clients and friends, Our insurance professionals are here to help you answer any questions pertaining to your specific insurance and financial needs and especially those involving business interruption insurance, including what is covered and what is not. We are not able to offer a blanket comment on business interruption insurance coverage pertaining to coronavirus situations because every situation is unique and every client has different policies in place that should be reviewed with someone on our team.
If you believe that your business has sustained a loss as a result of the COVID-19 situation, it is imperative that you promptly report the claim, as required by loss notice provisions in your policy, and that any damages are well-documented. While we anticipate a number of COVID-19 related claims may not be covered under the policy forms, our claims consultants are prepared to assist you with any potential claim you may have under your policies and will facilitate the investigation and coverage review of the matter with your carrier. Remember, your claim cannot be considered for coverage if it is not reported.
In addition, Illumination Insurance is working closely with the insurance industry to try to find a solution. We are keeping our finger on the pulse of not only the insurance industry, but also legislative and regulatory initiatives that may provide relief to small businesses. Here are two we are watching closely.
In addition:
We wish you all the best. Please stay healthy and, of course, do not hesitate to contact us should you have any questions.
March 15, 2020
Will Business Interruption Insurance Cover Coronavirus-Related Disruptions?
The coronavirus (COVID-19) outbreak was already delivering significant economic impacts across industries; now the World Health Organization (WHO) has officially declared the outbreak a global pandemic. This will likely result in further—perhaps even extended—economic fallout for nearly every industry.
Does this mean you should turn to your business interruption insurance for relief?
There will likely be increased claims against these policies, but whether these claims will be covered depends on several factors—beginning with the terms and conditions of the specific insurance policy and the circumstances surrounding the alleged loss.
Broadly speaking, business interruption insurance is a product that covers loss of income suffered by a business as a result of disruptions to their operations. Do coronavirus-based disruptions trigger coverage?
Understanding your insurance policy
While every policy varies, typically business interruption coverage is included as part of a company’s commercial property insurance and applies when the policyholder suffers “direct physical loss of or damage to” insured property as the result of a covered cause of loss.
Typically, businesses think in terms of traditional physical loss, such as that caused by a hurricane or a fire, when they consider a business-interruption insurance claim. However, some courts, while not wholly consistent across jurisdictions, have held that commercial property that becomes uninhabitable or otherwise not fit for use qualify as having suffered the requisite physical loss and, depending on the specifics of the policy, could be covered. Under this reasoning, there is a good argument that property that is rendered uninhabitable as a consequence of the virus falls within the scope of coverage.
Other forms of business interruption coverage
In addition to the standard language discussed above, some forms of business interruption coverage apply when there is an interruption caused by a disruption to the business’ customers or suppliers. Thus, for instance, if a key supplier is unable to provide essential component parts as a result of a covered cause of loss impacting the supplier’s property, then a policy holder may be able to recover for the resulting loss.
Other policies provide coverage for interruptions resulting from a “civil authority” prohibiting access to the insured’s premises as a result of damage to other property caused by a covered loss. Coverage of this sort could certainly come into play as governmental reaction to the spread of the virus ramps up.
Some policies expressly extend coverage to losses caused by “communicable or infectious diseases” without requiring physical damage to the insured’s property.
Much will depend on the wording of your policy, its exclusions/inclusions, and interpretation—but careful, thoughtful documentation during any period of business disruption may be critical.
Review your insurance policies now—and meticulously document pandemic-related business impacts
While answers to insurance questions surrounding the coronavirus pandemic are highly individualized, reviewing your policies now will allow you to evaluate your options and properly document and claim any covered disruptions.
To have your policy properly reviewed, or for specific advice regarding your coronavirus-related insurance concerns, please contact your Illumination Insurance Agent / Representative.
Business Interruption Insurance: 8 Terms to Help You Understand What is Covered
Most commercial property insurance policies provide coverage for business income loss by adding an endorsement to the insured’s property policy. This endorsement is designed to protect the insured for losses of business income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril. Although many such clauses are in use today, a typical business income insurance clause reads as follows:
We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.
In order to better understand business income insurance let’s explore the three terms highlighted above:
Extra expense is defined as the necessary expense incurred by the insured during the period of restoration that it would not have been subjected to if there had been no physical loss to real or personal property caused by a covered peril.
Note that when a business income loss occurs, the insured is obligated to take reasonable steps to try to avert or minimize such loss: Any expenses incurred to reduce the loss are covered as part of the business income loss. The insurer will typically limit such expenses to the point that such expenses reduce the business income claim. In other words, the insurer will not pay any part of the expense that is more than the claim itself.
For example, the insurer will reimburse the insured $100 to reduce the claim by $200; but the insurer will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this that are incurred to continue the business may be recoverable under an extra expense provision in the insurance policy.
Additionally, the business income endorsement section of property policies can include “extensions of coverage,” wherein the insured’s policy will insure against business income losses resulting from a variety of causes, including the following. (Note a sublimit typically applies for these optional, additional coverages.)
As illustrated by the various coverage options discussed, there are many considerations that businesses must weigh when purchasing business interruption coverage. In fact, the above are basic coverages; additional coverage options exist and can be customized based on an individual company’s needs. To learn more about business interruption, or to discuss the coverages that would be most appropriate for your organization, please contact one of our Illumination Insurance Agents / Representatives.
In order to fulfill our mission of being a one-stop resource for our clients and friends, Our insurance professionals are here to help you answer any questions pertaining to your specific insurance and financial needs and especially those involving business interruption insurance, including what is covered and what is not. We are not able to offer a blanket comment on business interruption insurance coverage pertaining to coronavirus situations because every situation is unique and every client has different policies in place that should be reviewed with someone on our team.
If you believe that your business has sustained a loss as a result of the COVID-19 situation, it is imperative that you promptly report the claim, as required by loss notice provisions in your policy, and that any damages are well-documented. While we anticipate a number of COVID-19 related claims may not be covered under the policy forms, our claims consultants are prepared to assist you with any potential claim you may have under your policies and will facilitate the investigation and coverage review of the matter with your carrier. Remember, your claim cannot be considered for coverage if it is not reported.
In addition, Illumination Insurance is working closely with the insurance industry to try to find a solution. We are keeping our finger on the pulse of not only the insurance industry, but also legislative and regulatory initiatives that may provide relief to small businesses. Here are two we are watching closely.
- This past weekend, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act allocates $350 Billion to help small businesses keep workers employed. The Paycheck Protection Program is outlined in detail in the attached U.S. Chamber of Commerce guide and checklist. If this program can assist your business, we suggest you contact your bank as soon as possible. The administration indicates that this program is expected to be available by April 3.
- On March 31, our associations joined several trade groups to ask Congress to create the “COVID-19 Business and Employee Continuity and Recovery Fund.” This is modeled after the September 11th Victim Compensation Fund. The CIAB report states that “it would be backed by the federal government and be authorized to contract with interested businesses to administer and facilitate the distribution of federal monies and liquidity to businesses and their employees. The relief would be tied to requirements to keep employees on the payroll, maintain worker benefits, and meet financial obligations. Strong anti-abuse provisions, including post-event audits, would be included.” We are watching this proposal daily and will post updates on our COVID-19 portal.
In addition:
- Consumers experiencing financial hardship due to COVID-19 may defer paying life insurance premiums for ninety (90) days.
- Consumers and small businesses experiencing financial hardship due to COVID-19 may defer paying premiums for property and casualty insurance for sixty (60) days.
- Premium finance agencies are required to provide the same relief as insurers.
We wish you all the best. Please stay healthy and, of course, do not hesitate to contact us should you have any questions.
March 15, 2020
Will Business Interruption Insurance Cover Coronavirus-Related Disruptions?
The coronavirus (COVID-19) outbreak was already delivering significant economic impacts across industries; now the World Health Organization (WHO) has officially declared the outbreak a global pandemic. This will likely result in further—perhaps even extended—economic fallout for nearly every industry.
Does this mean you should turn to your business interruption insurance for relief?
There will likely be increased claims against these policies, but whether these claims will be covered depends on several factors—beginning with the terms and conditions of the specific insurance policy and the circumstances surrounding the alleged loss.
Broadly speaking, business interruption insurance is a product that covers loss of income suffered by a business as a result of disruptions to their operations. Do coronavirus-based disruptions trigger coverage?
Understanding your insurance policy
While every policy varies, typically business interruption coverage is included as part of a company’s commercial property insurance and applies when the policyholder suffers “direct physical loss of or damage to” insured property as the result of a covered cause of loss.
Typically, businesses think in terms of traditional physical loss, such as that caused by a hurricane or a fire, when they consider a business-interruption insurance claim. However, some courts, while not wholly consistent across jurisdictions, have held that commercial property that becomes uninhabitable or otherwise not fit for use qualify as having suffered the requisite physical loss and, depending on the specifics of the policy, could be covered. Under this reasoning, there is a good argument that property that is rendered uninhabitable as a consequence of the virus falls within the scope of coverage.
Other forms of business interruption coverage
In addition to the standard language discussed above, some forms of business interruption coverage apply when there is an interruption caused by a disruption to the business’ customers or suppliers. Thus, for instance, if a key supplier is unable to provide essential component parts as a result of a covered cause of loss impacting the supplier’s property, then a policy holder may be able to recover for the resulting loss.
Other policies provide coverage for interruptions resulting from a “civil authority” prohibiting access to the insured’s premises as a result of damage to other property caused by a covered loss. Coverage of this sort could certainly come into play as governmental reaction to the spread of the virus ramps up.
Some policies expressly extend coverage to losses caused by “communicable or infectious diseases” without requiring physical damage to the insured’s property.
Much will depend on the wording of your policy, its exclusions/inclusions, and interpretation—but careful, thoughtful documentation during any period of business disruption may be critical.
Review your insurance policies now—and meticulously document pandemic-related business impacts
While answers to insurance questions surrounding the coronavirus pandemic are highly individualized, reviewing your policies now will allow you to evaluate your options and properly document and claim any covered disruptions.
To have your policy properly reviewed, or for specific advice regarding your coronavirus-related insurance concerns, please contact your Illumination Insurance Agent / Representative.
Business Interruption Insurance: 8 Terms to Help You Understand What is Covered
Most commercial property insurance policies provide coverage for business income loss by adding an endorsement to the insured’s property policy. This endorsement is designed to protect the insured for losses of business income it sustains as a result of direct loss, damage, or destruction to insured property by a covered peril. Although many such clauses are in use today, a typical business income insurance clause reads as follows:
We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.
In order to better understand business income insurance let’s explore the three terms highlighted above:
- Actual loss sustained: Business income coverage covers the actual loss sustained by the insured as a result of direct physical loss or damage to the insured’s property by a peril not otherwise excluded from the policy.
The insurer is only obligated to pay if the insured actually sustained an interruption of business leading to a business income loss. If the insured does sustain a business income loss, the extent of the insurer’s obligation is limited to the dollar amount of loss actually sustained, but not to exceed the applicable policy limit.
- Business income: Usually, the carrier is liable for the reduction in net income that results from suspension of operations—whether wholly or partially—due to a physical loss at the insured’s premises. This following commonly used definition of business income is intended to clarify what sums can be included when calculating the amount of loss.
"Business income includes the net income (net profit or loss before income taxes) that would have been earned or incurred by the insured and the continuing normal operating expenses incurred, including payroll.”
- Period of restoration: Insurers are liable for the loss of business income only during the period of restoration, which is often defined as the length of time required to rebuild, repair, or replace the damaged or destroyed property. The period of restoration begins when the physical loss or damage occurs; it ends when the property should, with reasonable speed, be repaired or replaced.
Expiration of the policy does not end the period of restoration. As long as the physical loss occurs during the policy period, the business income coverage will provide coverage for the duration of the period of restoration, even if the policy expires before the period of restoration ends.
The business income endorsement published by the Insurance Service Office (ISO)—as well as some insurer forms—includes a 30-day extended period of restoration beyond the standard period of restoration (the period from the time of loss until the time of repair or replacement).
However, the insured may require more than this 30-day limit. To address this issue, an insured may elect to increase this limit from 30 days to any multiple of 30 days up to 720 days. This is accomplished by purchasing the extended period of indemnity optional endorsement offered through ISO.
Extra expense is defined as the necessary expense incurred by the insured during the period of restoration that it would not have been subjected to if there had been no physical loss to real or personal property caused by a covered peril.
Note that when a business income loss occurs, the insured is obligated to take reasonable steps to try to avert or minimize such loss: Any expenses incurred to reduce the loss are covered as part of the business income loss. The insurer will typically limit such expenses to the point that such expenses reduce the business income claim. In other words, the insurer will not pay any part of the expense that is more than the claim itself.
For example, the insurer will reimburse the insured $100 to reduce the claim by $200; but the insurer will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this that are incurred to continue the business may be recoverable under an extra expense provision in the insurance policy.
Additionally, the business income endorsement section of property policies can include “extensions of coverage,” wherein the insured’s policy will insure against business income losses resulting from a variety of causes, including the following. (Note a sublimit typically applies for these optional, additional coverages.)
- Service interruption provides coverage for an insured for direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility or service including transmission lines and related plants, substations, and equipment of suppliers of such services.
The owners, managers, or operators of such utilities or services cannot be a named insured under the policy. The loss, damage, or destruction at the location of the utility or service must be the result of a peril(s) similar to the peril(s) covered under the insured’s policy. Note that the policy may impose some limitations, such as:- Limitations regarding distances (such as where the actual loss occurs to the utility’s property in relation to the insured’s premises where the business income loss occurs).
- Exclusion for certain perils such as earthquake.
- Exclusions for overhead transmission and distribution lines.
- Contingent business interruption (CBI) coverage is designed to cover an insured’s business income loss resulting from loss, damage, or destruction of property owned by others, including: direct “suppliers” of goods or services to the insured and/or direct “receivers” of goods or services manufactured or provided by the insured. The property damage to these suppliers or receivers must be of a type that would be covered by the insured’s policy had the damage happened to the insured’s property.
As noted, CBI coverage provides coverage for the “direct” relationship between the insured’s “suppliers” or “receivers” of its goods or services. This can create a gap in coverage for insureds involved in multi-tiered supply chains.
For example, consider that a supplier or customer of one of the insured’s direct suppliers experiences a loss resulting in an interruption to its operations, which in turn causes a disruption to the insured’s direct supplier/customer. Ultimately, this also causes a business income loss to the insured. Its policy will likely exclude coverage for this business income loss as the insured’s direct supplier did not experience direct physical damage/loss.
This coverage is typically added to a property policy by endorsement if requested by the insured. Commonly, the suppliers of the direct supplier—known as the “indirect” suppliers or “receivers”—must be identified.
- Leader property is an endorsement that provides coverage to the insured for direct physical loss, damage, or destruction of the type insured by the insured’s property policy to property not owned or operated by the insured, located within the stated distance to insured’s property or business, and which attracts business to the insured. Examples would include a nearby amusement park, casino, mall, or destination retail store.
- Interruption by civil or military authority coverage is provided to the insured for the actual loss sustained by the insured during the length of time when access to such described premises is specifically prohibited by order of civil authority as a direct result of damage as insured against in the insured’s policy, to covered property on the described premises or property adjacent to the premises described in the insured’s policy.
The coverage time period most commonly stated in this endorsement is either 14 or 30 consecutive days. The carrier may also impose a waiting period that must be reached in order for coverage to attach: Common waiting periods are 24 hours, 48 hours, or 72 hours.
As illustrated by the various coverage options discussed, there are many considerations that businesses must weigh when purchasing business interruption coverage. In fact, the above are basic coverages; additional coverage options exist and can be customized based on an individual company’s needs. To learn more about business interruption, or to discuss the coverages that would be most appropriate for your organization, please contact one of our Illumination Insurance Agents / Representatives.
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