COVID-19 and Business Interruption Across Industries
In this exclusive expert video briefing from the IMS COVID-19 Research Insights Series, we speak with Insurance Industry Expert, Dale Crawford, about business interruption caused by the COVID-19 pandemic and what to expect going forward.
Chris Ritter: What are some of the other industries that you think are going to be affected, and what policies get triggered as a result of that?
Dale Crawford: Well, one of the things of course, that's very big as any form of hospitality industry, hotel chains, resorts, cruise lines, things of that nature. One impact, of course, is the closure of hotels, resorts, things of that nature, and to what degree some of them may have coverage. But one example that could possibly come up, what if there is a major international hotel chain that does have coverage for shut down due to the virus? Well as an underwriter, I would have never anticipated that an entire worldwide chain could be shut down. I would accept my risk based on maybe one or two or a few properties being impacted by a virus, but with a worldwide shutdown chain, will the insurer have the financial wherewithal to respond to losses of this magnitude?
Ritter: What is this going to do to business interruption? What's this going to do to whether or not somebody has coverage or not? Do you have any thoughts on that?
Crawford: That is probably one of the biggest immediate questions that we have because there have already been so many suits filed. A check of the internet a few days ago, had a long, long, long list of businesses, mainly restaurants that have been shut down. With the virus exclusion in play, we don't know where that will go. Will the insurance regulators get involved and make decrees that the virus exclusion does or does not or should or should not apply? What will the courts say? We don't know about that. Will the courts be monolithic, or will it be different from one state to the next? This is probably one of the biggest immediate unknowns.
Ritter: Can we touch on some of these issues, some of these sub issues? You've mentioned the virus exclusion, there's an issue involving property damage. Whether there's actually been property damage. There's ingress, egress, those kinds of additional subjects. Can you touch a little bit on those and how you see those playing out?
Crawford: Exactly. For one thing, we're talking about property damage, you mentioned that. Supposing a hotel owner, operator discovers that the virus is present in some of its rooms. Now, will that be construed as damage to property from the existence of the virus that causes a shutdown? I think that's one big question that we may be facing.
Crawford: Another would be ingress and egress. If there are businesses in office buildings that have been shut down that can't operate, will that be a covered claim? What about the contingent business interruption from a supplier that's been shut down? Again, that would depend upon whether or not there is coverage for the virus at some point. These are just a few of the things that we're starting to look at this point.
Ritter: Can you give me a little bit more of an example of what you mean by contingent business interruption, for those people who are not familiar with it?
Crawford: Contingent business interruption is a loss to business interruption from the shutdown of a supplier or a customer, for example. The case I worked on recently. A power plant shut down, and a coal mine that was basically across the road that supplied coal to this power plant had to shut down too. The coal mines contingent business interruption coverage applied due to the shutdown of their customer, the power plant across the road. They couldn't operate; they couldn't sell their coal.
Ritter: You've raised some of the unique features, including the fact that this is a worldwide issue. It was instantaneous. I have to believe just those two features further complicate the contingent business interruption claims.
Crawford: It certainly does. There's no question about that. Then you have another factor too would be the effect on the industry. You mentioned that it's a global situation, and it is. It's affecting different countries in vastly different manners. We have to see how that plays out. One country might be affected greatly, and another one not so much, and then you have the different laws and the cultures of these countries that are going to all come into play to make a difference for the ultimate outcome.
Ritter: I think one of the most visible early on effects was in the cruise industry. We watched cruise lines being stranded, people being stranded, people unfortunately dying on cruises. I'm assuming that you're seeing that's going to be an industry that's going to be profoundly affected as well.
Crawford: I would imagine as well. Yes, everything from the shutdown business interruption for a cruise industry. What about spoilation of the foods that they had on board? A cruise ship getting ready to take off for a couple of weeks has an enormous value of food and drink on board. If that spoiled, there's a loss right there. What about the people who were on a cruise ship when it was ordered to stop, and they were stranded on that ship? We've all read about several of those over the past few months. Do they have a claim against that cruise line for negligence, for not shutting that down earlier when they could have gotten off? Is their personal injury there as a result? We don't know.
Ritter: We've already seen some claims being brought against, basically securities law type claims being brought against the directors and the officers and the companies themselves for misrepresentation to stockholders. Where do you see that going?
Crawford: That is probably one of the biggest questions there is. You can imagine the decrease in value of a cruise line as a result of having to shut down operations. Is there a claim against the directors and officers for not having shut that down a week or two weeks earlier, when they didn't have all of the claims from people contracting the virus when they wouldn't have had to have people on board for weeks that are now filing actions against them for personal injury of having to stay on board for a long time? This is one big unknown.