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The effects of the Coronavirus (COVID-19) on small business insurance coverage

Millions of small business owners are wondering if their insurance covers losses caused by the pandemic. Owning a business during a crisis of this magnitude is not for the fainthearted.

At the end of the day, we're all in this together.

If you are a business owner, you are probably thinking about making an insurance claim right now. The disruption has been tremendous to many owners. Unfortunately, most business policies, if not all, specifically excluding losses due to pandemics.

COVID-19 is creating a negative economic domino effect. What began as declining sales and closures has led to catastrophic disruptions that threaten the viability of millions of businesses.

Many businesses have workers that are sick or isolated. Others have lost money and opportunities due to missed shipments or lack of inventory. According to a recent survey (ISM), nearly 75% of all U.S. businesses have experienced supply chain disruptions due to the pandemic.

Trump and senior lawmakers are suggesting that insurers pay these claims. However, that would fundamentally assault constitutional contract law and possibly topple the insurance industry. I know that is not something that you want to hear right now if you are a current business owner. Perhaps, you are in dire need of economic relief at all costs. But sometimes, a short term fix could end up having long term consequences that are worse. And yet, the president of the United States has called for insurers to pay out to businesses regardless. There are also legislators proposing legislation that would retroactively expand coverage and require insurers to pay business interruption coverage claims. Although this will make many business owners happy, it would be a development that undercuts the entirety of U.S. contract law.

Are you telling me that my "Business Income" policy does not protect me during this pandemic?

Generally speaking, yes, I am.

These policies typically cover physical damage to the building indicated on the policy to qualify for business income benefits. Income loss from a bacterium, virus, or other microorganism is not usually covered.

Tell me more about this business income coverage.

Okay sure. I will do my best. First of all, it is also called business interruption insurance and can be added to a business owner's policy.

Second, it is part of the property policy and would cover an insured for a loss of income resulting from a "covered loss."

EXAMPLE: if your business's office burned to the ground, the company could not generate revenue. The business interruption would provide a level of reimbursement at this point.

It is not typically sold as a stand-alone insurance policy. The coverage is an add-on to existing property and casualty contracts. It will cover a wide range of losses, such as profits, fixed costs, wages, taxes, and loan payments. The larger the size of the business, the more likely you will need this coverage in place to prevent devastating repercussions.

In most insurance contracts, a business interruption event is usually defined as a physical loss. A virus is not physical damage to property. Some business interruption contracts will specifically list a "viral exclusion" clause, highlighting losses due to widespread disease such as a pandemic. I suppose they learned their lesson during the SARS epidemic.

Furthermore, any insurer or agent whose policy you purchased should explain whether it provides business interruption coverage or not. The carrier also may have a website that describes your business interruption benefits.

Is it too late to try and get coverage for a coronavirus-related loss?

Um, unfortunately, yes. If you can't purchase collision coverage on a car accident that has already happen, you will not be able to do it in this case as well. You simply can't buy coverage for a pre-existing business loss. But, you can make sure you are better prepared for moving forward.

You will be required to sign a "no known losses" form before they will issue coverage after a recent loss. Any claims filed for an event that took place before the policy was in effect (also called "in force") will be denied.

Do you know of any existing business insurance policies that would cover an event like coronavirus in the future?

To be honest, insurers typically do not write coverage for known events for which the extent of potential damage is not easily understood. In other words, a pandemic seems to be unpredictable in the amount of long term economic destruction it can unleash on an insurance company or economy.

The Excess Lines insurance market could be worth a shot. It is not regulated by the Department of Financial Services. Therefore, I would not recommend it. You could end up paying thousands of dollars out of your own pocket even with coverage in place if they decided to not pay an excessive claim.

Am I still covered if the government forces my business to temporarily close?

In most cases, no. Business policies do not cover a "civil authority," forcing a company to temporarily close or an owner closing as a preventive measure.

The coronavirus is reducing my foot traffic, will my policy cover the income I am losing?

Reduced foot traffic is never a reason to file a claim. Insurance companies are not able to differentiate if the claim is justified or not justified due to location, poor ownership, or pandemic. In summary, loss of income from slow foot traffic regardless of the situation, you are on your own.

Does my policy cover unexpected travel costs?

The extra expense is not a covered peril. Therefore coverage is unlikely.

There are Specific Special Event policies that reimburse for event postponement or loss of deposit coverage. Still, you must have that coverage in place before the coronavirus outbreak.

If an employee contracts coronavirus while working for me, am I responsible for the related cost? If so, can I initiate a claim?

To be accountable, an employee would have to show that the injury or illness arose in the course of their employment. If they can prove it, you are covered by your worker's comp policy. If they can't demonstrate the location, they will not be compensated.

What do you recommend for coronavirus coverage?

Currently, the insurance marketplace doesn't offer any policies specifically covering coronavirus.

Suggestions that could help in the meantime:

  • Allow employees to work from home, canceling travel, and other methods of social distancing

  • Implement safety precautions to guard against exposures

  • Enforce strict employee safety guidelines

  • Offer services such as delivery

Is there anything else I should know?

From a logical standpoint, the insurance industry is not designed to accommodate such widespread problems as the coronavirus. Insurance works successfully by pooling risk. Can you imagine owning an insurance company that might have to pay claims to the entire country? It is not reasonable to expect it to be possible. However, if epidemics or pandemics become more common, coverage will presumably increase, and the price of premiums would decrease. We have not had a pandemic of this magnitude in quite some time. Many of us were not prepared. If a business or market need exists, I am sure the insurance industry will quantify the risk and provide an insurance policy to cover it at the correct price.

The coronavirus poses an enormous economic threat to U.S. and international businesses. Millions will require extensive emergency financial assistance, which is the role of the government and regulators, not the insurers. If legislators were to retroactively amend these contracts, that would be clearly unconstitutional. Sure, it would help us now. But, the long term damage would be unmeasurable. The safety and soundness of the financial system would be affected. The entire insurance industry would be disincentivized and perhaps not even provide timely relief to companies that need it the most anyways.

When the epidemic finally comes to an end, linqrs mobile app will be very committed to helping small businesses be better prepared for the next one. The app connects enterprises in all industries to agents that are very knowledgeable and have the experience to consult appropriately. linqrs wants business owners to feel safer on their road to recovery, minimize future disruptions, and ensure the safety of their employees in all situations. If you have questions, you can always use the app to ask as many as you like to our network of live agents locate on the linqrs Pro app.


Steve Leach

CEO and Co-Founder of linqrs mobile app, The Most Clever Way to Shop for Insurance. Former Insurance Agency Owner, College and NFL football coach.

linqrs is downloadable in the Google Play and the App Store.

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