This morning’s post, Coronavirus Causing You Business Losses? Your Insurance could Provide Relief, is extremely important given the severity of the expected virus on business. Australian insurance professor Alan Manning recently wrote an excellent article on the topic. I have read numerous other articles and analysis of the issue. So, let’s start with the basics.

There is one quote from numerous articles, which accurately states:

“Potential coverage of these will be dependent on the Indivisible policies.”

No joke. I can give you the bottom line that most policies will not cover this lost income for most situations, but the situations of loss will change and you have to know the policy you bought and all the facts causing the loss or extra expense. .

All the big corporate law firm partners are having their junior “insurance recovery” associates who have been doing this for a short period of time research this huge dollar issue and probably trying to outdo each other with answers which will impress the in house general counsel, risk manager or CFO so they can get a “project” to bill on this which can be used to explain to their CPA’s for security requirements and financial requirements of the SEC, loans terms with bankers, and credit lines requirements, why these losses are not normally covered but could have been if you had a really good risk manager in your corporation.

Here is the greater explanation, as stated in Manning’s Australian publication:

Traditionally, business interruption policies only cover disruption to a business as a result of damage to ‘insured property’. However, over time, insurers widened the protection to provide coverage as a result of a closure of the business by a public authority for a number of risks including infectious disease. This was designed to cover things such as an outbreak of Legionnaires disease, or a measles outbreak which closes down one or two buildings disrupting a small number of businesses. Notwithstanding this some policies provide coverage for an outbreak up to 50 kilometres from the business location, but most only cover at or near the premises insured.

While there may be exceptions where a specialist business has secured very specialist global insurance, the cover afforded by both business packs and standard Industry Special Risks policies are not intended to cover disruption caused by an outbreak in a different state let alone a different country.

The outbreak of the SARS (Severe Acute Respiratory Syndrome) in 2013, prompted insurers and reinsurers to do modelling as to just how large claims could amount to in the event of a major pandemic such as the Spanish Flu which lasted from January 1918 – December 1920 and resulted in the death of anywhere between 40 and 100 million people. The reality is that the global funds held by insurers could not meet business interruption claims arising from such a large-scale pandemic. We would have no insurance industry to protect against the traditional insured perils.

Not wishing to strip away the coverage that was being offered for localised infectious disease outbreaks insurers, prompted by reinsurers, added an exclusion to their policies stating that disruption from a number of highly effective diseases were not covered. As such, diseases can arise at any time and originate from new sources, the insurance industry introduced a clause which excludes any disease that is notifiable under the Quarantine Act 1908 (Cth) which has been updated by many insurers in line with changes in legislation to the Biosecurity Act 2015 (Cth).

As of the end of January 2020, Coronavirus is a listed disease and so all, but a few, policies exclusions will take effect. This means that regrettably there is no insurance protection for disruptions to business arising from Coronavirus.

So, the general perception is that most losses will not be covered under most forms.

Christine G. Barlow on February 10 indicated the following:

Today ISO released two optional endorsements for use with the Commercial Property forms to provide limited Business Interruption coverage for business interruption due to actions by civil authorities in order avoid or prevent infection or spread by or from the Coronavirus. These endorsements have NOT been filed and are not being added to the ISO portfolio of forms. Likewise, ISO is not providing loss costs or supplementary rating information. ISO is continuing to monitor the situation. Any company filing the forms must follow all filing regulations.
There are two forms:
1. Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to Coronavirus and
2. Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to Coronavirus (Including Orders Restricting Some Modes of Public Transportation). Neither form is numbered.

The fact that the ISO is issuing endorsements providing for cover would suggest that most forms offer no coverage. But, every policy is different and with the various forms which are more commonplace with larger corporations, they should be fully read before coming to a conclusion.

Thought For The Day

When you live in hysteria, people start thinking emotionally.
—John Mellencamp