The unexpected and sudden shutdown of businesses and organizations due to the COVID-19 outbreak has had an extraordinary impact on our economy that will be felt for years to come. Future disaster recovery planning will likely place pandemic events even higher on the list of risk management priorities than in the past.
However, before we can focus on future events, we must work through the current crisis. There is little doubt that most businesses and organizations will suffer losses involving interruption of business and additional operating expenses associated with the COVID-19 event. In the months to come, there will be intense scrutiny into the availability of insurance coverage for business interruption losses associated with the COVID-19 event.
There are barriers to coverage that undoubtedly will be raised by insurance companies, which include:
• Most property policies require that for a business interruption loss to be covered, it must be caused by “direct physical loss of or damage to property at premises which are described in the Declarations.”
• Aside from the requirement of direct physical loss, many policies do contain specific exclusions for virus-related losses. These exclusions were developed in 2006, reviewed and approved by state insurance departments and are widely used.
Although these barriers may serve to preclude coverage for COVID-19 related business interruption losses, we encourage customers to file claims with their insurers for several reasons:
• The insurance company has the burden to prove that there is no coverage under the policy. Insurers are obligated to investigate all relevant facts and circumstances surrounding a claim and evaluate coverage under the policy.
• There may be governmental and judicial intervention that could compel insurers to pay losses that may not technically be covered. There are ongoing legislative discussions in multiple states on this topic.
• The state and federal government have passed a variety of bills, such as the federal “CARES ACT” which includes a “payroll protection” element to help with the economic fallout from the COVID-19 pandemic. Having detailed and accurate records will be helpful to document a claim. Also, a governmental assistance program is likely to require evidence that an insurance claim has been submitted.
In addition to concerns with business closures and/or reduction in revenue as a result of the COVID-19 pandemic, employers are also worried about the safety and well-being of their employees. The question has been raised as to whether coronavirus infection would be compensable under their Workers’ Compensation policy. In order for a case of COVID-19 to be compensable, there would need to be evidence that the work the employee performed put them at greater risk than the general public as a whole, such as could be the case for a healthcare worker. This could be a difficult standard to meet for other types of work, as there must be clear evidence that the virus was contracted while at work versus elsewhere.
Regardless, the best practice is to report a claim to your Workers’ Compensation carrier when:
• An employee asserts that they contracted the COVID-19 virus while at work, or
• An employee requests wage replacement benefits due to time away related to COVID-19, or
• An employee requests medical treatment related to COVID-19.
All claims will be investigated thoroughly and coverage will be determined on a case-by-case basis.
These are trying times, to say the least, but there are a few ways for some businesses to gain a bit of premium relief:
The premium for many General Liability policies is based on either estimated revenue or estimated payroll, depending on the type of business. If you are expecting your sales to be down or have had to lay off employees, you may request that your premium be adjusted to reflect these reduced exposures.
Workers’ Compensation policies are based on estimated payroll, which may also be adjusted downward. Furthermore, you might consider switching to a “pay-as-you-go” plan, where you would upload payroll reports with each payroll cycle and your premium would be deducted from your account based on actual wages for that period. If you have no payroll, you would owe zero premium.
Have a discussion with your agent about whether you are carrying any “non-essential” coverages that you could go without, even if it’s temporary. While this would be a last resort, it may be a conversation worth having so that you can make an informed decision about what is best for your business.
Lastly, it is important to note that most insurance companies have overwhelmingly expressed a willingness to work with businesses who may be struggling to pay their premiums. Many have offered to defer or modify installments, waive reinstatement fees, and even suspend cancellations. If you find that you are in need of assistance, please reach out to your agent or to the billing department of your insurance company. They are there to provide support and assist in any way they can.
Joan P. Hopkins is a Senior Account Executive at Clark Insurance.