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State Department of Insurance Statements About Business Interruption Coverage

Various State Departments of Insurance and other insurance regulators around the country have already begun issuing statements anticipating the coverage and enforcement issues that are likely to arise from the effects of COVID-19. Statements issued by the departments in WBD’s footprint are included below.  Determinations about the applicability of business interruption or civil authority coverage can be very fact-intensive; if you have any questions, contact your broker or one of our insurance coverage lawyers.  

North Carolina Department of Insurance:

Coverage Related to the Coronavirus Health Emergency: With the recent pandemic of the coronavirus, some business owners may be wondering whether their insurance policies cover losses resulting from a business shut down or other losses related to the coronavirus.  Under the business income policy, there likely is no coverage as losses occurring as a result of a virus or bacteria are typically excluded.  Business owners with questions about their coverage should contact their agent/broker or insurer directly and consider whether it is in their own best interest to file a claim. Please note that the North Carolina Department of Insurance does not have the authority to require insurers to extend coverage under the policy where specifically excluded or to sell this type of coverage to consumers. 

South Carolina Department of Insurance

Business Interruption Insurance Coverage & COVID-19

Businesses generally purchase insurance to protect themselves from potential losses. Business interruption or business income insurance coverage are examples of those types of insurance coverage and are usually offered as a supplement to a businessowners property insurance policy to recover financial losses that may result from an interruption or cessation of the business’ operations. 

Extra Expense and Civil Authority coverage(s) are additional coverages that may be purchased as a part of business owner’s business interruption or business income coverage.   

Extra Expense Coverage 
Extra expense coverage is complementary to business interruption insurance coverage.   It is designed to compensate the business owner for those necessary extra expenses to operate while the business is being repaired to enable the insured to minimize suspension or interruption of the business’ operations. 

Civil Authority Coverage 
This coverage is also additional coverage under a businessowner policy. It covers situations where the business has not been damaged but has been ordered to shut down by civil authorities. 

With the outbreak of the Coronavirus, some business owners may be wondering whether their insurance policies cover losses resulting from a business shut down or other losses related to the Coronavirus.  Under the business income policy, there likely is no coverage as losses occurring as a result of a  virus or bacteria are typically excluded.   

Business owners with questions about their coverage should contact their agent/broker or insurer directly and consider whether it is in their own best interest to file a claim.   Please note that the South Carolina Department of Insurance does not have the authority to require insurers to extend coverage under the policy where specifically excluded or to sell this type of coverage to consumers. 

Maryland Insurance Administration:

Maryland Insurance Administration Advisory on Business Interruption Insurance

BALTIMORE – The Maryland Insurance Administration is receiving a high volume of inquiries about Business Interruption insurance.
Business Interruption coverage is typically triggered under a commercial insurance policy when a covered risk / peril causes physical damage to the insured premises resulting in the need to shut down business operations.  For example, if a fire damages a business and the business cannot operate during repairs, business interruption coverage would be available subject to the terms and limits in the policy.

Most policies require a waiting period of 24 to 72 hours before coverage begins and coverage continues for the reasonable period of time to restore the property and reopen, subject to the coverage limit of liability.  Some commercial policies provide Business Interruption coverage when a business is shut down due to an Order by a civil authority.  However, the policy still typically requires a physical loss from a covered peril as the underlying cause of the business shut down to apply.

All insurance policies have exclusions of coverage for risks that are too great to be underwritten at an affordable price.  For example, commercial and personal property insurance policies typically contain specific exclusions for loss or damage caused by war, nuclear action and radiation.  The potential loss costs from such perils are so extreme that providing coverage would jeopardize the financial solvency of property insurers. Global pandemics like COVID-19 usually fall into this category. However, policies can be different. We recommend that businesses review their policies and reach out to their insurance professionals with any questions.

The Maryland Insurance Administration would like to reassure Maryland businesses that we are closely monitoring insurance issues related to COVID-19. Our core mission is making sure insurance companies treat customers fairly and follow the provisions in their policy and applicable state laws. We are monitoring relief activity efforts aimed at assisting individuals and businesses at the local, state and federal levels.  As information regarding relief programs becomes available, it will be posted on their website:  www.insurance.maryland.gov.

Texas Department of Insurance:

Coronavirus issues for business insurance
Policy language on business policies varies. For any type of insurance, policyholders should read their policy and talk to their insurance company to determine what coverage is available.

Business interruption insurance covers financial losses due to property damage that prevents a company from doing business. A related product is contingency business interruption insurance, which covers indirect losses when suppliers or customers are affected. However, these coverages are usually based on direct physical damage to the property, which an epidemic would not trigger.

Read your policy language carefully and talk to your agent to see what might be covered:

  • For a business that does have contaminated tangible property, then that contamination may qualify as direct physical damage to the property.
  • Some business interruption policies extend coverage for “civil authority” orders that restrict access to the property or area that the business depends on for its operations.
  • Some policies exclude epidemics and pandemics

Event cancelation insurance covers economic losses due to unforeseen cancelation of a special event. Covered causes of loss are typically those that physically cause the event to be canceled. If the policyholder voluntarily cancels—even for a reasonable concern such as a communicable disease—the policy may not pay. Policies vary so it’s important to read the policy and check with your agent. Some policies exclude epidemics and pandemics. Some would only cover coronavirus if a communicable disease endorsement was added.

General liability insurance could cover bodily injury claims from third parties for harmful exposure or failure to guard against risk of exposure to the virus. There could be exclusions for epidemics, pandemics, or communicable diseases.

Workers’ Compensation pays for medical bills and some lost-time income for employees who have been injured or contracted an occupational disease as a result of their employment. Claims are reviewed on a case-by-case basis to determine whether the exposure to a virus occurred in the course and scope of employment instead of a disease that the general public is exposed to outside of employment.

Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume X, Number 93
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Established in Winston-Salem in 1876, the firm now comprises 550 lawyers in 14 offices, including Winston-Salem, Charlotte, Greensboro, Research Triangle Park, Raleigh, NC; Atlanta, GA; Charleston, Columbia, Greenville, SC; Tysons Corner, VA; Washington, DC; Baltimore, MD, Wilmington, DE and Silicon Valley, CA..  A full-service business law firm, Womble Carlyle serves a wide range of regional, national and international clients in industries that include health care, life sciences, financial services, commercial real estate, intellectual property/patent, and telecommunications...

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