Does Your Organization’s Business Interruption Coverage Protect Against Financial Loss Due to the Coronavirus?

As news surrounding the novel coronavirus continues to develop, we’re receiving an influx of coverage questions from our clients regarding the potential interruptions that may impact their operations and income.

Experts predict the virus will result in forced businesses closures, disruptions to manufacturing, restricted global travel and more.

In fact, it’s estimated that the weekly global trade loss resulting from coronavirus restrictions is roughly $26 billion.

What do you need to know?

As you are probably aware, insurance policies vary in their language, so it would be inappropriate to say for certain if coverage exists without analysis of your specific policy.

In general, however, if your business, school or nonprofit needs to close its doors for any period of time—whether for preventative efforts or quarantine purposes—it’s highly unlikely that there will be any insurance coverage that will cover financial losses that emerge as a result of temporary closure.

As is the case with influenza each year (15 million reported flu illnesses during the 2019-2020 season), there is no insurance that will cover associated financial losses related to any interruption of production or revenue during flu season.

Property & Casualty insurers are expecting a slew of coronavirus claims to emerge claiming business interruption, however, experts are saying that most will be contested.

Business interruption coverage is designed for the actual loss of net income and continuing or extra expenses as a result of direct physical damage from a covered cause of loss (i.e. fire, windstorm, etc.). It is quite difficult to claim that a virus falls into this category, not to mention the fact that over the years, many policies have specifically excluded not only mold and bacteria, but also viruses.

Some manufacturers might have contingent business interruption coverage on their critical suppliers, but that coverage would have much of the same hurdles to overcome as those mentioned above.

To reiterate, it is important that your specific policy is reviewed as there could be some very small and limited extensions for a government ordered shutdown or food contamination for example.

Finally, it is important to note that the comments above are focused on addressing business interruption losses as it related to virus and pandemics.  We should mention here that there may be some limited coverage under other specific polices for trip/travel insurance.

Also, the possibility exists for third-party liability which could result from the way in which a business responds to an outbreak. The allegations being the actions, or inactions, taken by a business that result in the contraction of the virus to a third party.

So what can you do?

As we covered in a recent post, the best approach to manage this growing risk is a proactive one. In addition, The Centers for Disease Control and Prevention has a great primer on organization’s dealing with the threat and some preventative steps that can be taken right now.

Beyond the wellbeing of your employees, there are some proactive steps you can take to reduce the potential for your organization to be disrupted should you have to close your business or cease operations for a given period of time.

Ultimately, how your organization plans for epidemic/pandemic responses should be an integral part of your overall risk management strategy.

Plan as if the worst is going to happen—you’re forced to shut down for two weeks. Define the key operations of your organization, the main players who will take lead, and have a road map that outlines how you will function during this period. Some best practices include:

  • Consider any services that are crucial to your organization, it’s operations and objectives and keep this inventory updated.
  • Look toward any outside services, vendors or similar crucial members of your organization that you depend on, including suppliers, technology vendors and the like–have you considered alternatives?
  • Estimate the potential impact widespread closure could have on your organization beyond core functions—does your clientele require your service to function?
  • Consider your communication networks and account for potential remote working/telecommuting. As such, it’s a good practice to ensure that your IT team has the resources and capabilities to manage and run remote operations should you need them.

Currently, prevention is the strongest form of defense against this virus and may require your organization shut down. As organizations introduce more mobile and flexible work environments, it will be beneficial to leverage these resources in ways that mitigate overall risk.


About Bolton

Bolton & Company is a leading, independent insurance broker serving the needs of thousands of clients across the country. Founded in 1931, our story is one that continues to grow with the industries, organizations and communities we serve every day, and our success has been dependent upon fostering an environment where our team of professionals can grow, develop and thrive in their roles to best support our clients.

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