COVID-19 Pandemic Brings Questions About Business Interruption / Loss of Income Coverage to Forefront
In the last couple of days, you have likely thought more about business interruption (BI)/loss of income coverage than ever before. It is often viewed as one of those “it can’t happen to me” coverages. Thankfully, compared to many other businesses and professions, lawyers can work from most anywhere. But, if the clients won’t come in, depos are cancelled or courts are closed, your earnings could still be impacted.
So, the first thing you might wonder is what OAMIC might have in its box of offerings. Your core coverage, lawyers professional liability, is a third-party liability coverage, meaning it protects you from legal liability to a third-party – your clients. Therefore, this policy does not include first-party coverages like BI or loss of income.
That said, some of you also have the office package policy we offer through RLI Insurance. This coverage, commonly known as a business owner’s policy (BOP), does have a sub-limit for “business income and extra expense.” This is often noted as up to 12 months actual loss sustained.
The interesting part is what triggers the BI/loss of income coverage. All policies in which I am aware note that for BI to apply, it requires a direct physical loss of or damage to property at the described premises as listed on the policy. In other words, the business interruption must result from a covered cause of loss. This is easy when you think of fire, windstorm, a collapsed roof, etc. In addition, many insurers who offer property coverage and include BI, may also have specific exclusions for virus or bacteria. There is also an exclusion or small sub-limit for fungi.
It is very difficult for insurers to provide coverage opinions without having a specific claim submitted to them. There is no doubt that the COVID-19 is an extremely unprecedented time, so there may be other factors that influence or create claim coverage decisions out of the ordinary. This virus makes it very difficult to know how to deal with BI, supply chain mapping and business continuity.
I speculate that a lot of people and businesses are looking at uninsured losses post pandemic. It is also possible that we will see some destabilizing of insurance markets. States like New Jersey and New York are mulling unilateral action to force retroactive coverage regardless of the terms of the contract. These actions would then create a different set of problems like insolvency of insurance companies or companies leaving specific markets if forced to pay losses that were never contemplated nor included in the rating process.
Some have suggested a pandemic is similar to terrorism in that severity is too high and probability incalculable to be either insured or reinsured. They are therefore calling for PRIA (Pandemic Risk Insurance Act), much like TRIA (Terrorism Risk Insurance Act). The problem with a solution such as PRIA is that working with and through the federal government, you can’t get it done fast enough, let alone retroactively. It was a fight for the industry to get TRIA renewed this year.
I am hopeful this at least gives you some understanding about BI/loss of income coverage, and the unique situation insurers are facing. The dynamics in play with COVID-19 make it unsettling on a number of fronts. It also makes it nearly impossible to layout a roadmap for how all of this will shake out a year from now, much less next week.
Please feel free to contact us if questions remain.