Property Policies, Business Interruption, and Coronavirus–Are You Covered?

This blog post can also be found on our Coronavirus Resource Center.

Diagnosed cases of the novel coronavirus are increasing daily, resulting in decreased business travel, office closures, and supply chain disruption. Many companies are facing the reality of facility cleaning and/or interrupted business in some form and are asking the question: “Does my property policy provide coverage?”

The simple answer is probably not. It’s likely not a comforting answer, but depending on the situation, there may be some limited coverage. The explanation of coverage involves understanding the intent of these types of policies.

Are the Costs of Cleaning My Facilities Covered?

The question to ask here is whether the presence of the coronavirus in a facility constitutes property damage. A property policy is triggered by direct physical loss or damage to a covered location by a covered peril, such as fire or windstorm. Communicable/infectious disease is not typically a covered peril, and on many policies, communicable/infectious diseases are explicitly excluded. Some policies do provide limited communicable/infectious disease coverage by endorsement, however. If this type of endorsement is part of a policy, it is likely subject to a relatively small sub-limit. The coverage is normally provided on an annual aggregate basis, as opposed to a per-occurrence basis. These endorsements will cover clean-up costs if a governmental authority restricts or prohibits access to a location because there is actual presence of a communicable/infectious disease. If you choose to deep clean your facility or office as a precaution, there is no coverage.

What about Business Interruption?

Business Interruption (BI) coverage has the same triggers as property coverage–namely, direct physical loss or damage to a covered location by a covered peril. Again, communicable/infectious disease is usually not a covered peril. As with the property policy, your BI coverage may include limited coverage for communicable infectious diseases if you experience business income loss arising from a shutdown of your facility due to the actual presence of a communicable/infectious disease. If the government mandates a shutdown as a precaution, there is no coverage. As with property damage, if coverage is provided, it is usually subject to an annual aggregate sub-limit.

What If My Supply Chain is Disrupted?

Even if coronavirus doesn’t hit every community, many businesses are likely to experience some form of supply chain disruption due to the globalization of trade. Disruptions in supply chains can be covered by Contingent Business Interruption (CBI). CBI coverage functions similarly to BI coverage. An example would be a component supplier in Taiwan experiencing a fire, making you unable to complete the manufacturing of your product. CBI coverage is triggered the same way as BI coverage‒specifically by direct physical loss or damage to a supplier’s or customer’s location by a covered peril. Communicable/infectious diseases are almost never a covered peril. Furthermore, insurers usually will not offer the communicable/infectious diseases endorsements discussed above for CBI coverage.

Business Considerations Moving Forward

Communicable/infectious disease exclusions and limitations existed prior to the coronavirus outbreak and they are unlikely to go away when the outbreak subsides. Companies should look to risk management and risk mitigation to address situations like these, especially when effective risk transfer is not available. Supply chain resilience and business continuity planning will be trending topics through 2020. The coronavirus may lead companies to rethink business strategies around inventory management and the number of suppliers.

For questions and issues with respect to your specific business and policies, speak with your Woodruff Sawyer team. Every claim is different and we will examine the specifics of your policy with you and advocate on your behalf.