The COVID-19 pandemic has caused enormous economic impacts across the world. In the US, communities across the country have seen hospitals filled to capacity and local businesses shuttering. Workers are missing out on wages due to lost hours at closed businesses or mandated quarantines after coming down with or being exposed to COVID-19. Consumer spending has taken a hit in many sectors as customers stay home, save money or shift buying to online retailers.
The pandemic was certainly not on most business’s radar at the beginning of this year. Many companies are wondering whether their insurance policies might provide some relief. After all, the primary reason businesses take out insurance policies is to protect themselves from unexpected risks. Businesses have a lot of questions about COVID-19 impacts on business risk and how business insurance could help. In this post, we address some common COVID-19 business insurance questions.
Is COVID-19 An “Act of God”?
“Act of God” is an admittedly outdated term. Most insurance policies haven’t used it for years. But it’s firmly-enough ingrained that many business owners wonder hopefully whether an unexpected pandemic like COVID-19 might fit the description of an “Act of God.” And, if it does, are they entitled to some sort of insurance payout for lost revenues and other business impacts?
The short answer to this question is, “probably not.” For one, as noted above, insurance policies no longer use the phrase “Act of God.” The term was meant to cover natural phenomena like earthquakes, wildfires and other disasters that are beyond human control and difficult or impossible to predict and plan for. While some legal contracts may still use the similar term “force majeure” as a blanket term for powerful forces beyond the control of the contracting parties, insurance policies tend to explicitly list the events for which coverage is provided. Instead of “Act of God,” they would say, “earthquake” and “wildfire,” for example. While it would be possible to explicitly list pandemics in a list of covered events, most standard policies probably don’t include this.
Will My Insurance Cover the Costs of Government-Imposed Shutdowns?
A powerful secondary impact of the pandemic has been state and local mandates preventing people from gathering in certain spaces. Common targets are restaurants, bars, gyms, and beauty salons. These shutdowns can often have a greater direct economic impact on a business and local economy than the virus itself. So, would insurance provide support for lost revenues as a result of a government-imposed shutdown?
Again, probably not. Most policies won’t have coverage for business impacts caused by the actions of governments imposing shutdowns.
Can I Take Out a New Policy to Add Protection for the Pandemic?
The nation may not have anticipated the COVID-19 pandemic, but now that businesses are aware of the tremendous impact, can they take out coverage specific to that risk?
That’s a bit like asking if one can take out an auto-insurance policy after an accident has already occurred! If the loss has already occurred, the answer is certainly no. It’s theoretically possible an insurance company would be willing to consider a policy for future losses, but most will deny coverage for an ongoing event, or one that is “in force.”
What if I Have a Business Income Policy?
Many businesses have policies that protect against lost income due to certain events. Again, policy holders are unlikely to get much relief here. These policies have specific covered events that include things like actual physical damage to a business caused by fire, for example.
Can/Should I Pause or Cancel My Business Insurance If I Pause Operations?
First, we strongly discourage anyone from cancelling insurance, even temporarily. We discuss this topic in detail in a separate post, but suffice it to say that cancelling insurance can cost a lot more in the long-run than any savings on premiums. Instead, consider checking with your provider about payment options. Many providers have been flexible with respect to late payments and deferments.
COVID-19 has provided an historic shock to the economy and to millions of businesses. Of course, one of the primary reasons companies take out business insurance policies is to mitigate against the risk of such unexpected shocks. Insurance policies may vary, so it’s important for companies to educate themselves on the specifics of their own policies and consult legal counsel as needed on areas of specific concern.
Unfortunately, insurance policies are not likely to offer any direct or specific relief to policy holders. Standard business insurance policies simply don’t tend to cover things like pandemics and associated government shutdowns. It may be possible, however, to work with providers to get some relief on premiums, at least temporarily, until business picks up again.