COVID-19: Preparing for Business Interruption and Other Claims

As the novel coronavirus (COVID-19) outbreak continues to spread — with more than 80,000 confirmed cases globally as of late February — organizations are preparing for possible effects on their operations. This includes the potential for business interruption, due to the presence of the virus on their premises, employee absenteeism, or supply chain disruptions.

Insurance Considerations

One question being raised is whether insurance coverage might respond to virus-linked losses. Property policies typically require physical damage arising from a non-excluded or covered peril that manifests either:

• At the insured property to trigger a covered loss.
• On a nearby property — impacting access to the insured premises — to trigger ingress/egress or civil authority coverage extensions.

Losses linked to lost business due to fear of contagion or because of supply chain challenges are unlikely to be covered, depending on specific policy wording, unless property damage is established. Policies may contain “contamination” exclusions, but may also include extensions that can cover losses or costs related to decontamination, ingress/egress, or civil or military authority. But there are likely to be specific conditions related to coverage triggers.

Parametric, indemnity-based insurance policies could also be triggered without direct property damage.

Start Getting Ready

Businesses should be reviewing their policies, including any extensions, with their brokers and claims consultants to better understand terms and conditions.

It’s also time to get a clear understanding of insurers’ expectations and requirements for documentation when submitting a claim for a covered loss.

Discussions with your claims advisors and insurers should include, but not be limited to:

• Any requirements to provide details of infected persons or swabs to confirm the presence of the virus on your premises. Be mindful of potential breaches to health information privacy regulations.
• The documentation that should be gathered for your insurance claim, including documentation from suppliers that are unable to deliver on their contracts and/or proof of government-mandated closures.

Other actions should include:

• Keeping a detailed log of visitors, which could become useful if the virus is identified on the premises.
• Identifying declining business activity by analyzing variances between forecast and actual revenues.
• Pinpointing additional costs incurred from mitigation activities and their effect on profit margins.

Measure the Impact

With an understanding of your policy wording and your insurers’ requirements, start to document the  financial impacts of the outbreak that fit within those parameters. Unusual costs — for example, cleaning and disinfecting the premises, overtime pay to make up for production losses, and media or communications campaigns to inform the public or employees — should be captured separately.

It’s also good practice to capture all potential costs associated with the virus and its business impacts, such as cancelled orders, supply chain breakage, and lost profits. Even if these may not ultimately be covered under current insurance programs, they can inform future risk mitigation and management strategies.

The current outbreak could also lead to changes or advances in insurance coverage and risk management best practices. Watch for these developments as you manage today’s coronavirus risk and prepare for potential outbreaks in the future.