Is The Coronavirus A Covered Peril Under Business Income?

By Frank Thompson… Beginning the second week in March, the phones in our office started ringing with propane marketers calling to ask if they had any coverage under their Property Policy-Business Income if they were forced to close because of the governmental mandates ordering business to close because of COVID-19.
Frank Thompson Propane PT Risk Managment

Later, we learned that energy business was considered essential business and could and should continue to operate. Therefore, marketers were forced to find ways to protect their own employees from the public as they continued to operate. In almost every instance, efforts to keep employees safe were less efficient and more costly, resulting in marketers looking for ways to offset their losses. So, they turned to their insurance policy to see if they had coverage.

The questions were novel, a virus causing a loss of business income. Business Income is normally only triggered by a covered peril, such as a tornado, wind, hail, fire, lightning, etc.

To answer their questions, we immediately reviewed Property Policies with Business Income from many of the insurance companies and found that most use a standard ISO (Insurance Services Office) endorsement entitled Exclusion of Loss Due to Virus or Bacteria.

The exclusion is for Commercial Property and excludes the following:

a. “the exclusion covers property damage to buildings or personal property and all forms that Cover business income and extra expense or action of civil authority.”
b. “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness, or disease.”

The above exclusion has been on all Property policies that have Business Income since 2006. So, based on the above policy wording, the simple answer to the question, “Do I have coverage caused by the COVID-19 virus under my business income?” is no. However, you need to continue reading.

The magnitude of the business closures were not well known at the beginning of March. Today, as this is being written a month later, the federal government is now estimating that more than 30 million small businesses will be closed or drastically affected by the coronavirus.

The result is that Congress and many state governors are trying to pass legislation that would force the insurance companies to pay Business Income and Extra Expense losses caused by governmental action.

If forced to pay the Business Income losses, it is estimated that the insurance companies would pay out between $220 billion to $382 billion dollars per month, exhausting all of their surplus to write property and casualty insurance within two months.

So what should a marketer do if they feel like they have a Business Income claim? We recommend that you turn in a claim to your insurance carrier. The claim would require a normal 72-hour waiting period from the time the loss started, and should be detailed to show your losses. Let the insurance company decide if they are going to cover your claim or reject it.

We hope and pray you all stay healthy during these unsettling times.

Frank B. Thompson is a chartered property and casualty underwriter based in Phoenix. He is the owner of PT Risk Management, an independent insurance company specializing in writing propane and petroleum risk policies throughout the U.S.