Here we are several months into the Covid-19 Pandemic. Businesses have been applying and receiving a variety of loans and grants; SBA, local government grants, health and human service grants, business association grants, etc.

But should our business insurance help cover our losses incurred by the closures and loss of business caused by the pandemic?  

Prior to becoming a CPA, I was a licensed insurance agent; for 27 years I assisted countless businesses and individuals with their insurance needs. Despite my recommendations, clients frequently declined business interruption insurance.

Business interruption insurance replaces business income/profits lost due to a direct physical loss or disaster, such as a fire or a natural disaster. The policy will cover some operating expenses, rent, payroll, loan payments, relocation to a temporary location among other expenditures. It does not cover the actual damage to property. Damage coverage is provided under other policies, auto, commercial property policies, fire, flood, earthquake, and so on.

There are exclusions of course. Included with your policy declarations is an overwhelming packet of small print, listing your coverage, and of course, what is excluded from your coverage. Some policies are very clear: acts of war, invasions, revolutions, military coups, terrorism, pollution, and contagious diseases are among items excluded.  

You can ask your agent who may or may not know what is not covered, what is written in the small print. But unless that agent has dealt with another client getting a claim denied they frankly may not know.

Shortly after the SARS epidemic in early 2002, many insurers began added specific exclusions for bacterial and/or viral infections to most business policies.

And here we are… COVID-19 is a virus. So, do you have coverage? You may, you may not.

Does your policy just exclude bacteria and does not note an exclusion for viruses? If so, maybe you have coverage. I say maybe because frankly, insurance companies would go bankrupt if they paid all the claims for Covid-19 and so, chances are they are not going to pay. Coverage will be denied and then there will be lawsuits. I can also see the insurance companies using the argument that your losses were minimized/covered due to those SBA, local government, association grants, and loans that you don’t have to pay back. Insurance will reimburse for a covered loss; if you received compensation for that loss elsewhere, they would not have to pay. No double-dipping!

There are additional policies/supplements to the business interruption policies – yes, I know more money to be spent on something you may never need. Or so you think.

These include:

• Supply chain insurance for producers that need materials, parts, supplies to create a product. Suppliers need to be listed on this policy to have coverage and may have the bacteria/virus exclusion.
• Liability Insurance – can you be held responsible for failing to protect others from exposure to infection?
• Errors and Omissions Insurance – may cover mismanagement of your business response to the pandemic by Directors or Officers.
• Workers’ compensation – coverage for your employees for injuries “arising out of or in the course of employment” Are health care workers being covered if they contract the virus from a patient? Can an employee receive workers’ comp if they catch the virus from a co-worker?

There are a few supplemental policies to cover communicable disease contamination; a large and historic insurance company (no naming – not trying to promote any insurance company) offers a policy called “Pandemic Disease Business Interruption Insurance”. The policy was offered after the Ebola epidemic in 2014 to cover loss of income arising from government-mandated closure of healthcare facilities and loss of revenue in the aftermath of a quarantine.

To Summarize:

Insurance protects against a possible eventuality.

Before the Covid-19 pandemic did you even consider insurance to cover losses related to a virulent disease? Did your insurance agent suggest or offer this coverage? 

How many even had the thought of a situation where a virus would take over our lives at the level it has?  

Since the pandemic, several states are considering forcing retroactive policy changes to cover business interruption claims; though since you didn’t pay for the coverage are their efforts may be for naught.

But do you have coverage?

I suspect unless you are one of the few that purchased a communicable disease contamination policy, you probably don’t have coverage that will replace your income or expenses due to pandemic closures.  

You may have coverage related to the transmission of the virus to third parties via your liability policy, coverage for your employees via your workers’ compensation policy.

A conversation with your insurance agent may be in order. They may be able to provide some clarity as to what is covered. Also, some insurers are refunding or even waiving premiums for a short period of time due to the crisis. You may also consider looking into a business interruption policy for covered events.

Author: Rochelle Gager, Client Service Mananger

With over thirty years of experience in accounting, insurance, and property management, Rochelle Gager brings her expertise in bookkeeping, tax strategy, and tax preparation to Naden/Lean. Before joining the firm, Rochelle served in several senior-level roles where she managed all aspects of business operations including business development, client relationship management, and budget allocation. As a Client Service Manager (CSM) and Certified Public Accountant for Naden/Lean’s Dental CPA division, Rochelle provides ongoing accounting services as well as federal and state tax preparation for individuals, partnerships, limited liability companies, and small corporations. She is dedicated to helping clients achieve business success by assisting them in establishing practical tax and financial processes.