The Coronavirus has now been determined to be a global pandemic. Today, the World Health Organization declared Coronavirus to be a pandemic.
The impact on insurance will be felt far beyond the origin of the virus outbreak in China. “We have never before seen a pandemic sparked by a coronavirus. And we have never before seen a pandemic that can be controlled at the same time,” WHO Director-General Tedros Adhanom Ghebreyesus said Wednesday. The contagion caused by the coronavirus has already caused the cancellation of South By Southwest, and the financial losses were estimated to be in the hundreds of millions. Touring musicians and rock bands, industry conferences and trade shows, and Spring Break travel plans have all fallen victim to the virus. A number of large corporate fairs and conferences have been scrapped or postponed, and the question of cancellation insurance has been raised. There is concern it may lead to cancellation of the Olympics. The cost to businesses could rise into the billions of dollars.
The question arises whether the financial losses suffered by such cancellations are covered by insurance. According to the Wall Street Journal, corporations already have had claims rejected for payments under a popular type of coverage called business-interruption insurance, according to industry brokers and lawyers.
Businesses purchase buy business-interruption insurance policies to cover lost income following catastrophic events, such as hurricanes, earthquakes or events that cause physical damage to their property. Businesses can also purchase business interruption insurance as part of that policy. However, insurers have added language over the years to seek to exclude communicable diseases as triggers, forewarned by the SARS scare in the early 2000s of the potential costs stemming from unknown viruses, according to brokers and lawyers.
Business interruption coverage is typically contained in an endorsement that accompanies property insurance. As such, business interruption coverage is only triggered when the policyholder sustains ‘direct physical loss of or damage to’ insured property by a covered cause of loss. In the event of a claim for coronavirus-related business interruption, certain insurance carriers may dispute whether this ‘physical loss’ requirement has been met.
As one firm has noted, “[p]olicyholders should keep in mind, however, that courts across the country have not settled upon a uniform rule for when insured property has suffered a ‘physical loss.’ Courts in a number of jurisdictions have determined that contamination and other incidents that render property uninhabitable or otherwise unfit for its intended use constitutes a ‘physical loss’ sufficient to trigger business interruption coverage. The determination of whether ‘physical loss’ has occurred will therefore continue to require a close examination of the particular facts of each case.” Government action may also impact coverage.
As always, if an insurer rejects a claim, policyholders can seek to identify ambiguities and nuances in policies to challenge in court. Legal experts say ambiguities typically are construed in favor of policyholders. That is where a good law firm that frequently handles first-party insurance claims can make all of the difference.