Coronavirus Business Interruption and Worker Compensation
COVID-19, frequently referred to as the coronavirus, is causing unprecedented disruption throughout the world. As the virus spreads throughout the United State, two coverages – business interruption and workers compensation – are being questioned as to their relevance in such a catastrophe.
In general, business interruption insurance provides lost income as a result of an insured business suffering physical damage that is covered under the policy (such as a fire). It may also cover operating expenses such as utilities. Due to the typical requirement that the insured business suffers physical damage, in general, business interruption coverage would not respond to lost income as a result of the coronavirus.
Business interruption coverage is typically part of a commercial property policy, so physical damage is normally needed to trigger the coverage; it will generally not be triggered by other forms of business interruption, including the coronavirus.
Some government authorities are placing restrictions on how and when business can operate. Commercial policies may provide coverage for losses related to civil authority, but they are generally related to civil closures of property that prevents access to the insured business. The closures are often related physical damage.
Viruses, such as the coronavirus, as not typically insured unless added by an endorsement. Agents and insureds should look not only for an endorsement, but for a specific exclusion, too. Historically, as diseases or viruses have spread, insurers have expanded exclusions to list them, in some cases, by name. That said, health care endorsements may include communicable disease coverage. But again, the communicable disease may have to result in physical loss or damage to the insured property.
ISO’s New Business Interruption Forms
Earlier this year, the Insurance Services Office, ISO, released two new endorsement forms: “Business Interruption: Limited Coverage for Certain Civil Authority Orders Related to Coronavirus” and “Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to Coronavirus (including Orders Restricting Some Modes of Public Transportation).” These new endorsements provide coverage for losses as an outcome of governmental order closing the insureds premises, quarantining of the insured premises, and suspended transportation by nature of a governmental order.
Coverage from both endorsements begin immediately upon suspension of business operations. ISO did not file these forms on behalf of the industry. Rather, the forms are available for carrier use. Carriers using the forms will need to file them with the appropriate authority.
According to the National Council on Compensation Insurance, NCCI, despite the series of infectious diseases over the past 20 years (SARS, H1N1, Ebola, etc.), there aren’t significant case studies on how workers compensation was affected.
Among the typical coverage provided by Workers Compensation is disease that arises out of and in the course of employment. Many states specifically exclude “ordinary disease of life,” such as the common cold or flu.
We will likely see arguments made, particularly by healthcare workers, that the coronavirus should be listed as an occupation disease and exceeds the “ordinary disease” definition. In fact, Washington State, which has been heavily impacted by the coronavirus, has already changed its policy related to healthcare workers and first responders. Washington State will now provide benefits to these workers if they are placed in quarantine.
NCCI has also noted the potential economic impact as it relates to workers compensation. Many businesses are canceling events, limiting travel and other forms of in-person interaction, expanding remote work policies, and being flexible on sick leave programs. Its possible that these alterations and restrictions could lead to a major impact on the economy. Take, for example, the hospitality industry and the pending impact on payroll levels and claim frequency as they both relate to workers compensation.