Unfortunately, it’s unlikely that you will find coverage through your business disruption coverage. Generally, the triggering event for coverage would include physical damage; a pandemic is not considered physical damage. Also, under business disruption coverage there can be Civil Authority coverage, this too generally is triggered by physical damage.
Standard policies also usually contain an exclusion for viral pandemics or pandemics. These exclusions arose in or around 2003, during the SARs outbreak and are traditionally maintained in the standard language of commercial insurance. Keep in mind that policies can differ greatly, so it’s always important to talk with your licensed insurance agent to clarify exactly what is or is not included in your coverage.
- Business interruption insurance coverage protects against losses sustained due to periods of suspended operations; it pays loss of revenue that would have been earned if there was no business interruption. It typically provides coverage only if a physical loss to property occurs and may have specific exclusions for viral infections such as COVID-19.
- Contingent business interruption insurance policies protect against losses from supply chain disruptions but may require the occurrence of property damage to trigger coverage.
- Event cancellation insurance provides coverage for expenses arising from delays, rescheduling or cancellations due to unforeseen covered events. Typically, contingent business interruption and event cancellation insurance policies exclude coverage for communicable diseases, such as COVID-19.
It is very important to review the provisions in your business polices, particularly business income policies. Here are some things to look for in your policy;
- Business income polices reimburse an owner due to loss of income due to a suspension of operations.
- Common Policy Verbiage: 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 direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit Of Insurance is shown in the Declarations.
The Insurance Department recommends that you contact your agent to review your policy and ask additional questions.
While a loss does not need to occur to your business for Civil Authority additional coverage to be triggered, a loss does need to occur to another business for there to be coverage. Again, the Department recommends that you review your policy with your agent.
Common policy verbiage: In this Additional Coverage, Civil Authority, the described premises are premises to which this Coverage Form applies, as shown in the Declarations. When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain…
Contingent business income provides coverage when a supplier has suffered a loss, therefore forcing your business to not be able to function. The trigger for contingent business income would be a loss to the supplier’s property.
Most policies contain similar definitions to those listed below, however, the Department recommends reviewing your specific policy for accurate definitions.
Losses are broken down under three main coverages:
- Basic – named perils needs to be listed in the policy.
- Broad – named perils needs to be listed in the policy.
Example of a named peril:
Infectious Diseases – this includes loss caused by the complete interruption of your operations by an infectious disease acquired by your employees or staff.
- Special – covers any loss not excluded in the policy, must be direct physical loss.
Example of an exclusion:
Virus or Bacteria – any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.
Common Policy Verbiage: When Special is shown in the Declarations, Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy.
There are discussions underway at both the state and federal level about finding a way to make this pandemic a triggering event. While that would potentially bring coverage, it would have a massive effect on the insurance industry. Insurance is a product that is risk rated and sold based on those risks that are covered in the policy. This type of event was excluded from many policies, and to retroactively enact coverage would put the entire insurance industry at risk of insolvency. This move could also lead to dramatic rate increases, which could also make insurance unaffordable to businesses as we look to recover from this pandemic.
Additionally, the government retroactively amending contracts (insurance agreements) would also face significant constitutional issues and would ultimately be challenged in court.
The best option at this point may be to explore what resources are available in North Dakota and through the federal government. To learn more about disaster loans and other programs to help business owners during this difficult time, visit ndresponse.gov/covid-19-resources.