The proliferation of event cancellations and quarantines have generated many questions as to how an insurance policy would respond to business interruption losses due to COVID-19 fears. That answer depends on the cause and nature of the interruption or expenses, so each cause will be individually addressed, starting with business-specific risks and moving to more general economic risks. All standard ISO policies should be reviewed for coverage as well as what endorsements may be available and what additional alternative products the market might have or may develop.
The most serious and direct risk is if your business has actual cases of the COVID-19 within your employees or clients. If this occurs, you may be faced with the prospect of voluntarily closing for a quarantine period or a governmental agency may force you into quarantine. This would generate not only loss of profit but you may have various cleaning and remedial expenses associated with the outbreak including PR expenses to help curb the damage to your brand.
Unfortunately, the unendorsed standard ISO property policy only responds to direct physical losses like wind, fire and theft, so it would not cover a COVID-10 quarantine. Many companies do have a “Communicable Disease” endorsement that would cover both the costs of business interruption on a gross profit basis and costs for cleanup. This coverage generally has a sublimit of $50,000 to $100,000 that could be raised for an additional premium. Note, the endorsement is limited to the actual presence of the disease at the insured premises. A general geographical quarantine or a shut down of a dependent property like an airport, does not trigger coverage.
Many insurance policies have coverage endorsements for suspension of operations of a dependent property or a shutdown of the insured property from civil action, but again, coverage is only triggered if there is a direct physical loss. Conceivably, these endorsements could be changed to include coverage for disease outbreaks, but that is a carrier case-by-case decision and would only make economic sense for those with significant exposures. For most insured, this coverage will not be available.
Finally, a general decline in business or travel due to COVID-19 fears or even an outbreak in your area is not covered under the standard ISO policy and is not available even by endorsement. The insurance philosophy is that this is a business risk that is not insurable. Some carriers, like Munich Re, are working on products that cover business interruption if outbreak numbers exceed certain levels. There are also risk-sharing pools that target businesses to join and share the exposure caused by outbreaks. Of course, these products will be at an additional premium and may be significant.
There is a market for separate event cancellation insurance that is working on adding COVID-19 endorsements. These would be manuscript coverages that could be tailored to cover event cancellations due to the size of the outbreak numbers or government action.
For most businesses, they will not be able to look to their insurance policies for relief from COVID-19 driven business interruptions and business impacts from changes in travel patterns. The industry will likely respond in the future, but it may be too late to effectively add this coverage to your current insurance program. You should discuss how your current policy may respond with your agent and develop a plan for future outbreaks.