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Business Interruption Insurance and Pandemics

Among the many, and mostly challenging, changes brought on by the COVID-19 pandemic is an evolving landscape for Business Interruption insurance.

Most Property & Casualty (P&C) Insurance policies exclude coverage if a claim does not include direct physical loss or damage to the property caused by a covered cause of loss. Some also contain exclusions for losses caused by viruses, pollution or bacteria. For those reasons, many businesses who have filed Business Interruption claims based on government-mandated closings have had those claims denied by their insurance carrier. Fallout has included:

  • an upsurge in lawsuits over denial of Business Interruption claims;
  • proposed state legislation that would require carrier payment for COVID-19-related Business Interruption claims regardless of policy language;
  • new communicable disease exclusions in P&C policies;
  • a proposal from the world’s largest carrier for government-backed pandemic insurance.

Here’s a summary of recent key developments:

Court ruling on business interruption insurance

A Michigan court on July 1 issued the first ruling in a lawsuit contesting such assertion, deciding in favor of the insurer. With decisions pending in lawsuits regarding denial of business interruption coverage related to government-mandated COVID-19 closings throughout the nation, many decisions are sure to follow.

Proposals in state legislatures

Proposed state legislation seeks to include Business Interruption as a covered loss under P&C policies. Most of these bills, including in Massachusetts and Rhode Island, would allow carriers to apply for reimbursement for Business Interruption insurance settlements through state-administered funds. Insurance industry groups have opposed the bills, saying retroactive inclusion of perils unpaid for by premium would be untenable for carriers.

Communicable disease exclusions

At least one carrier has announced explicit Communicable Disease exclusions for four policies:

    1. Business Owners Policy (BOP)
    2. Commercial Package and General Liability
    3. Garage
    4. Excess Liability (Umbrella).

Other carriers are sure to follow in specifying communicable exclusions that apply to both Business Income and Liability coverage.

Carrier appeal for government support

Recognizing that the COVID-19 pandemic is not the last outbreak of communicable disease the planet will face, Lloyd’s of London, the world’s largest insurance market, has proposed expansion of pandemic insurance, which would include government assistance to protect insurers. According to the online publication Insurance Business, “Lloyd’s has outlined three open-source frameworks that could be applied around the world and that it believes would provide consumer protection.” The respective coverages, all addressing business interruption not caused by physical damage, would:

  • pool small- and medium-size businesses to offer affordable coverage that would provide limited assistance with reopening;
  • combine commercial and government funds to provide long-term relief;
  • protect customers from the long-term effects of catastrophic events, such as pandemics, through a partnership between government and the insurance industry.

Different kind of court settlement

While Lloyd’s proposed coverages would apply only to future pandemics, Pandemic Insurance does currently exist. In the most celebrated COVID-19 claim settlement, the All England Lawn Tennis Club collected about $141 from an insurance policy including an Infectious Disease clause after pandemic forced the AELTC to cancel Wimbledon for the first time since World War II. Multiple reports revealed that the AELTC had paid about $34 million in premium for the coverage over a span of 17 years, but they did not disclose the identity of the carrier who provided the coverage.

In a June 30 interview, Lloyd’s CEO John Neal told Bloomberg that it had received 30,000 claims related to COVID-19 and settled “about one-third.” The Bloomberg story also reported, “Insurance executives across Europe and the U.S. have been brainstorming ideas to protect against future shocks after Covid-19 led to lockdowns and the biggest slump in global output since the Great Depression.”

With  so much in flux, Sylvia Group and our Alera Group partners are monitoring developments closely.  For further updates, visit the Sylvia Group Blog and Alera Group’s Coronavirus Resource Center.

Senior Account Executive, Sylvia Group


About Ray Armstrong and Sylvia Group

A Certified Insurance Counselor (CIC), Certified WorkComp Advisor (CWCA) and former Certified Public Accountant (CPA), Ray Armstrong is an invaluable resource to the Sylvia Group team, as well as to our clients. Having previously served the agency as Comptroller and Chief Financial Officer, he has close working relationships with all the agency’s departments, and his decades of community service on the SouthCoast give him insights to the region’s strengths and business climate.

Sylvia Group uses SPS – the Sylvia Protection System – to empower businesses and individuals with performance-based insurancebenefits and financial planning programs. SPS makes our clients active participants in managing risk and containing premiums, resulting in coverage that is both customized and cost-effective. In addition to making a difference for our clients, we make a difference for our community as a whole by actively supporting and serving many of southern New England’s most reputable and effective nonprofit organizations and institutions. Sylvia Group became an Alera Group company at the outset of 2020, enabling us to combine the local, personal service for which we’re known with the scope and resources of a national firm.