Today’s world is mired in uncertainty. The novel coronavirus, named COVID-19, has frozen economic activity on an unprecedented scale. As a result, many businesses are facing severe economic concerns. My goal is to provide the everyday business owner with a sense of direction in this tumultuous time.

COVID-19 and Businesses:

The COVID-19 virus has affected a wide variety of businesses across the globe, including right here in America. Many people are choosing to stay at home rather than attend gatherings or events, and, as a result, businesses are suffering. Government authorities on the local, state, and federal levels, are implementing restrictions that prevent businesses from operating at full capacity.[1] In fact, some business have been forced to close completely for an indeterminate amount of time.[2] The most strongly impacted are brick-and-mortar businesses, that rely on in-person transactions. This includes restaurants, bars, hotels, movie theaters, theme parks, gyms, event facilities, convention centers, entertainment establishments, beauty salons, and more. In turn, their suppliers and other auxiliary businesses feel the pinch of low-demand; a ripple effect that shakes the economy’s foundations.

Restrictions are not limited to doing business.  The Centers for Disease Control has recommended that people should not travel or attend gatherings with more than ten people and should stay more than six feet away from others. At the state level, the restrictions vary from shelter-in-place orders for the “medically fragile” (Georgia)[3], to statewide shelter-in-place orders (California[4] and New Jersey[5]).  Locally, municipalities are closing bars, dine-in restaurants, night clubs, gyms & fitness centers, movie theaters, live performance venues, bowling alleys, and private social clubs (Atlanta)[6]. While the restrictions vary, the effects of these restrictions upon small businesses is real. The question becomes, therefore, what can small businesses do to protect themselves?

Is COVID-19 a covered peril?

Since this novel coronavirus surfaced, I have examined numerous commercial insurance policies for restaurants, hotels, gas stations, industrial logistics buildings, academic institutions, and other industries. After thoroughly reviewing these policies, I have found that some policies may provide COVID-19 related business interruption coverage, while other insurance policies flat-out deny “virus” coverage. Below are a few ways in which the effects of COVID-19 on one’s business may be considered a covered peril.

I.               Virus and Disease Coverage:

Virus Endorsements are the clearest and most straightforward avenue for a policy holder to seek business interruption damages under their policy, but, in my experience, this type of insurance endorsement is rare. Nonetheless, some commercial policies do contain such an endorsement, and business-owners should read their policy to determine if their policy is one of them. Below are two examples of endorsements/exclusions relating to viruses:

Here is an example of a Virus Endorsement which includes virus as a covered peril:

            Compare with the following example of an endorsement which excludes virus coverage: 

II.             Civil Authority Coverage:

Civil Authority coverage is additional coverage that may be purchased as part of a commercial policy. Civil Authority policy provisions may include coverage for lost business income. This coverage is applied when a civil authority, such as a local or state government, prohibits access to a business’s property due to a government order (California, Georgia, supra). The actual loss that triggers civil authority coverage typically has to be a loss at a different premise and must be a Covered Cause of Loss. Below is an excerpt from a commercial policy:

Note: Civil Authority Coverages typically have a “cap” of a specific allotted amount of time. For example:

III.           Mitigation: 

In light of these circumstances, a common question arises: what can businesses do to mitigate their losses? First and foremost, businesses should comply with local, state, and federal guidelines and restrictions to the best of their ability. This can be done by offering mobile or online shopping, drive-thru, carryout, or delivery services. This way, businesses can demonstrate their efforts to maintain the status quo the best they can. Should mobile or delivery services be impractical, the alternative response is to hire a professional sanitation company to thoroughly sanitize the businesses’ s premises. Although it might be expensive, business owners should hold on to their receipts as these mitigating steps might be covered under their business insurance policy.  

My Prediction:

Regardless of whether a business owner has coverage, I believe businesses will be filing claims at an increasing rate with the mere hope that their business interruption is covered. However, the reality is that most business owners around the country do not have a clue as to whether their business policy holds some avenue to recover from COVID-19 pandemic business freeze (and their insurers will not tell them either). Thus, I recommend business-owners consult with an insurance specialist, such as a public adjuster or property insurance attorney, before they file a claim with their insurer.

 I believe some insurance companies will be severely impacted by COVID-19. I’ve noticed that a significant number of insurance carriers have specifically excluded virus as a covered peril. These exclusions were implemented years ago, without COVID-19 specifically in mind. The insurance carriers who did not implement these types of endorsements are at risk. Simultaneously, and unfortunately, I believe an abundance of small businesses have the potential of going out of business because of COVID-19. Not having coverage or the inability to obtain coverage will be devastating to small business owners, and they will simply be unable to sustain their businesses with their doors shut indefinitely. 

Going forward, I anticipate that all carriers will specifically implement endorsements that exclude coverage for viruses. Although virus coverage is a novel matter, insurance companies creating an exclusion for a specific peril that reduced their profit margins is not a novel occurrence.

Conclusion:

From policy holders to insurance companies, this novel issue will be trial and error for everybody involved in the commercial insurance industry. Over the past two weeks, I have discussed this matter with many insurance attorneys who represent large insurance carriers and, frankly, they do not know what to expect. Although we are all traveling down a path of uncertainty, I can guarantee that this issue will be litigated and new case law will be made, providing us all a roadmap for operating a business during future pandemics.  In the meantime, we all need to come together to fight one of the biggest threats to our county in modern history. At the end of the day, insurance coverage is minuscule compared to saving lives.

I hope this article provides some sense of direction for business owners across the country. If you would like for our insurance professionals to review your policy to evaluate whether you have a business interruption claim due to COVID-19 and its effects, please do not hesitate to submit a copy to remington@lawhuggins.com. We would love the opportunity to perform a thorough review.

[1] https://www.eater.com/2020/3/15/21180761/coronavirus-restaurants-bars-closed-new-york-la-chicago

[2] https://www.politico.com/states/new-jersey/story/2020/03/21/murphy-directs-new-jersey-businesses-close-amid-fight-against-coronavirus-1268627

[3] https://www.wsbtv.com/news/local/atlanta/gov-kemp-give-update-coronavirus-crisis-georgia/2X3QEJI2E5GTDIO2XLKLG3Y7NU/

[4] https://www.businessinsider.com/california-gov-newsom-issues-statewide-stay-at-home-order-2020-3

[5] https://www.newjerseyhills.com/bernardsville_news/news/murphy-tells-state-stay-home--hour-curfew-in-effect/article_0100dc72-280b-5b08-a2b7-b681600ef467.html

[6] https://wgxa.tv/news/local/atlanta-mayor-signs-executive-order-closing-bars-and-gyms-limits-restaurants-to-take-out