Posted In: Insurance Recovery
Insurance Blog: I Can't Get Product, I'm Losing Money, Is There Coverage for the Coronavirus?
on February 20, 2020
In a global economy, companies are increasingly dependent upon their foreign facilities and foreign suppliers to provide products, parts or raw materials. When a pandemic disease occurs that shuts-down facilities, there can be a financial ripple effect causing disruptions in supply chains. While the insurance industry learned from past epidemics like SARS and Ebola and added specific exclusions to preclude coverage, a policyholder would be wise to review its policies to see if there is an ability to recover any losses.
Business Interruption at Policyholder’s Facility
Many policyholders have business interruption coverage as part of their first-party property policies. These policies typically cover actual loss in business income due to a suspension of operations of the policyholder’s facility caused by property damage. Depending on the facts and the terms of the policy, a contagious disease itself may not constitute “property damage” – i.e., direct physical loss, damage or destruction of property. But, if the disease has contaminated and damaged your HVAC units or medical equipment forcing you to shut-down your facility, this may constitute property damage. Likewise, depending upon the specific terms of the policy and the jurisdiction, there may be coverage if an incident simply renders property uninhabitable or unusable. Be aware – many policies have express exclusions for virus and bacterial infections, and one should expect an insurer to raise pollution exclusions as a possible coverage defense.
Contingent Business Interruption at Supplier’s Facility
Some policyholders have purchased insurance to cover losses as a result of disruptions in their supply chain that also could provide coverage. Like business interruption, contingent business interruption provisions typically require property damage to a supplier’s facility (usually, expressly named in the policy). And, many of these policies have virus/bacterial exclusions.
New Products
There is hope.
- BI Endorsements: Some large insurers provide coverage for business interruption losses due to communicable diseases and responsive efforts, albeit with sublimits.
- Supply Chain Risk Insurance: Several insurers issue products that cover contingent business interruption and do not require loss to physical property.
- Civil Authority Coverage: If your losses are the result of local government, military or civil authorities taking action to prevent the spread of diseases, there may be coverage for business interruption even in the absence of property damage.
- Environmental Insurance: Some policies cover liability for an insured’s liability for bodily injury, property damage, and clean-up costs caused by disease if the policy defines “pollutant” broadly to include disease agents like a virus or bacteria. Others provide coverage for damage caused by certain diseases (i.e., Legionella bacteria).
The key with any good risk strategy is to know your policies. Review all potentially applicable policies and analyze whether there could be coverage for this loss. Also, ensure that you are capturing your lost profits and expenses accurately. It may be difficult to do in a crisis, but it is imperative to recovering the loss. Finally, be wary of new endorsements limiting or precluding coverage. Business interruption and contingent business interruption provisions vary greatly, and we can anticipate more products and exclusions, and with the significant costs at stake, more litigation regarding what coverage is actually afforded.
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2024 Brouse McDowell. All rights reserved.