What Insurance May Cover Your Business for Coronavirus Losses?
Author: Thomas R. Lemens, Esq.
This is part two of an ongoing series of articles summarizing the current status of insurance coverage for losses arising from the coronavirus (COVID-19) pandemic. Part one, published April 24th, 2020, is available here.
As a second wave of coronavirus shutdowns looms, many business owners are likely still waiting to receive payment for the income they lost to the first wave. Assuming COVID-19 qualifies as a “direct physical loss” – and thus, a Covered Cause of Loss under your insurance policy – what coverages might you be able to claim successfully as compensation for your lost income? In this article, we examine three of the most common coverages – Business Income, Extra Expense, and Civil Authority – to determine whether businesses suffering from coronavirus can recover their losses under these coverages. We also briefly examine Dependent Property coverage, a special extension of the other coverages which may prove useful to small business with numerous repeat clients.
Business Income Coverage
The most common type of coverage is Business Income (also called “business interruption”) coverage, which compensates a property owner or tenant for income lost because the covered property was out of operation. Under the industry-standard ISO form for Business Income Loss (CP 00 32 10 12), Business Income applies where all of the following elements are present:
- A “suspension”: a slowdown, cessation, or inability to rent premises;
- Of “operations”: your business activities at the premises;
- Which is caused by a “direct physical loss” that is “caused by or resulting from a Covered Cause of Loss”;
- To “property at premises” listed on the policy’s declarations page;
- During the “period of restoration”: the period of time beginning 72 hours after the loss, and ending when either your damaged on-site property could be repaired or you could re-open your business at a new permanent location. (Note that some policies include endorsements shortening the start of this period – check your policy to see if your waiting period is shorter.)
In simpler terms: for standard Business Income coverage to apply, coronavirus presence must cause your on-site business activities to slow or stop for at least 72 hours. Multiple studies have shown that COVID-19 may persist for over 72 hours on plastic and stainless steel. [1, 2] This accords with observations of other coronaviruses (such as strain 229E) that persist up to 5 days on ceramic, Teflon, and glass at roughly 70 degrees Fahrenheit.  However, environmental factors complicate this analysis: for example, strain 229E’s lifespan seems to decrease with growing humidity at room temperature, but seems to increase with growing humidity at low temperatures.  Conversely, COVID-19’s lifespan appears to decrease with growing temperature and humidity, with significant reductions in lifespan at 95F relative to 75F or 45F. [5, 6] However, sunlight appears to rapidly inactivate COVID-19 particles even at room temperature. 
These findings suggest that COVID-19 is most likely to persist for substantial enough lengths of time to trigger Business Income coverage on hard surfaces in cool, dry indoor environments. An example situation where this coverage might apply is a restaurant whose refrigerators, freezers, or cool cooking equipment were contaminated by COVID-19 transmitted from asymptomatic infected patrons, forcing it to suspend operations until its property was decontaminated. Similarly, a hotel (or apartment) whose rooms were contaminated with COVID-19 from an infected guest (or tenant) might well be able to recover under Business Income coverage for any ensuing inability to rent its rooms. Conversely, many all-too-common COVID-19 stories – losing business income due to mandatory closures, supply chain disruptions, or simple customer fear – are not likely to be recoverable under standard Business Income coverage.
As always, the language of your policy and your case’s facts will control; given the uncertainty around the science of COVID-19, showing that your loss is directly traceable to COVID-19 contamination from your business operations will be critical to your case’s outcome.
Extra Expense Coverage
Extra Expense coverage, like Business Income Coverage, is created by the ISO Business Income Loss form. However, there are two versions of the Business Income Loss form: CP 00 32 10 12 (which provides Extra Expense coverage) and CP 00 32 06 07 (which does not); your policy’s schedule of forms and declarations page will both identify which form is included. Extra Expense coverage applies when all of the following elements are present:
- You incur “necessary expenses” to “avoid or minimize the ‘suspension’ of business”;
- The expenses are incurred during the “period of restoration”: unlike Business Income coverage, this begins immediately after the loss;
- And you would not have incurred these expenses absent the “direct physical loss or damage resulting from a Covered Cause of Loss.”
Because Extra Expense coverage includes efforts taken to “avoid or minimize” the suspension of business, many coronavirus-caused losses that fall outside Business Income coverage might be covered as Extra Expenses. For example: restaurants shifting to takeout-only service might recover additional expenses incurred as a result – such as increased wages/hazard pay for staff, costs of extra packaging, or increased delivery fees. However, because extra expenses must be “incurred,” insurers can and will require policyholders to evidence payment of those expenses – keep copies of your invoices and receipts, as you will need them. Moreover, because the expenses must be “necessary,” insurers may contend that particular expenses were entirely unnecessary or partially overpriced; evidence of why a given expense was incurred will be essential to obtaining coverage.
Civil Authority Coverage
The third type of common coverage is Civil Authority coverage; as the name suggests, it applies when a civil authority (usually the local government where the property is located) prevents the property from operating due to a natural disaster. Though listed under the ISO form for Business Income Loss (CP 00 32 10 12), not every policy includes this coverage – check your policy’s declarations page, which will state whether civil authority is covered. If it is included in the policy, Civil Authority coverage applies where all of the following elements are present (emphasis mine):
- A “Covered Cause of Loss causes damage” to “property other than property at the described premises”;
- “Action of civil authority prohibits access to the described premises“;
- Access “to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage”;
- “The described premises are within [the prohibited-access] area but not more than one mile from the damaged property”; and
- The action is taken “in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss.”
In summary: for Civil Authority coverage to apply, coronavirus must damage a property within a mile of yours, and a governmental authority must shut down the area containing your business in response to that coronavirus. Immediately, this eliminates several types of well-documented coronavirus losses from coverage:
- If no coronavirus cases have been reported within a mile of your property, the “not more than one mile” condition fails.
- If access to the area around your property is permitted, the “immediately surrounding” condition fails.
- If your business is still open at reduced capacity or for certain services (e.g. takeout) only, the “prohibits access” condition fails.
- If you voluntarily shut down your business without being ordered to do so, the “action of civil authority” condition fails.
Moreover, because Civil Authority coverage (unlike Business Interruption coverage) requires “damage” to nearby property, even a full shutdown of your business may not be enough to qualify. Caselaw has noted and emphasized the distinction between “loss” (which includes loss of use) and “damage.”  This issue is likely to rise or fall within the broader issue of whether coronavirus presence is a “physical loss”: if coronavirus is not a “physical loss,” it will not be “damage” either; conversely, if coronavirus is “damage”, it will likewise be a “physical loss”. Nonetheless, the courts may decide that coronavirus qualifies as a “physical loss” (as it causes loss of use to due to presence of physical particles on a surface) but is not “damage” to property (because the underlying property is not permanently altered).
If coronavirus qualifies as causing “damage,” some situations may qualify for Civil Authority coverage. The most notable example would be stores or restaurants in malls, or business hosted in multi-tenant buildings, that become inaccessible because the entire complex is shut down due to coronavirus at another on-site business. The same may apply to strip malls, though the separation between stores may cause the “immediately surrounding” condition to fail. Again, your policy and facts will be key to coverage – if your policy lacks the “immediately surrounding” and “damage” conditions, or only requires a “loss that prohibits access,” your case for coverage will be much stronger.
Dependent Properties Coverage
Finally, the Dependent Property coverage is a special extension provided by ISO form CP 15 08 06 07. In essence, any property listed on the Dependent Properties form is treated as if it were your premises for Business Income, Extra Expense, or Civil Authority coverage. The rules for those coverages still apply: for example, if one of your suppliers was forced to shut down by civil authority where no coronavirus was reported within a mile of your supplier, you would still lack coverage for losses resulting from that supplier’s shutdown. Types of properties covered by the Dependent Properties form include “propert[ies] operated by others whom you depend on to” do any of the following:
- “Deliver materials or services to you, or to others for your account”;
- “Accept your products or services”;
- “Manufacture products for delivery to your customers”; or
- “Attract customers to your business.”
With regard to coronavirus, this form is useful because it allows you to recover for disruptions off your immediate premises. As the language of this form makes clear, “dependent properties” include more or less every step in the supply chain: “delivering materials” covers your suppliers and service providers, “accept products or services” covers your business customers, “manufacture products” covers your manufacturers, and “attract customers” covers your marketers. Indeed, it might even stretch as third-party delivery drivers for your business; they qualify as “delivering services to others for your account.” However, because a “dependent property” must be “operated by others whom you depend on,” this cannot substitute for Business Income coverage from lost direct-to-consumer sales, even those from repeat or regular customers – even if your business depends on those customers, you do not depend on their properties for your business.
The major downside to Dependent Property coverage is that, unless the dependent property is specifically listed, you can only recover three ten-thousandths (0.03%) of your business income limit per day, per dependent property. For some businesses, this limit may be less important: a cleaning, catering, or laundry service might have a large number of repeat clients not specifically listed in its schedule whose cumulative business from shut-down properties can combine to rapidly reach the limit. Conversely, for businesses with a small number of high-value clients, this coverage limitation may seriously restrict recovery: a factory-direct outlet’s coverage is capped at 0.03% of its business income limit per supplier per day, whether daily sales of that supplier’s products were worth $1,000,000 or $1,000.
If coronavirus is determined to be a “physical loss” – which is hotly disputed by insurers, and which the courts have not yet decided – business owners may be able to recover under their commercial property policies as follows:
- Business Income Coverage: income lost on property from business slowdown or shutdown due to coronavirus presence.
- Extra Expense Coverage: money you spent to keep your business running despite coronavirus presence at or near your property.
- Civil Authority Coverage: lost income from government-enforced total shutdown due to coronavirus detected within a mile of the premises.
- Dependent Property Coverage: lost income and money spent because parts of your supply chain or contract customer base had to shut down due to coronavirus.
Bear in mind that your policy will also contain numerous exclusions and conditions that may reduce or eliminate your coverage; we will examine some of the most prominent of these in a future article.
About the Author: Thomas R. Lemens is an associate at Murr Law, PLLC, where he practices primarily in the fields of insurance, breach-of-contract, and trade secret litigation. He graduated from the University of Texas at Austin School of Law in 2018, where he was two-time state champion in the Giles Sutherland Rich Moot Court Competition. As his younger sister, mother, and paternal grandmother are all medical professionals, he has learned more than he ever wanted to know about the coronavirus pandemic. He spends his quarantine searching for his long-lost core muscles, sanitizing his gym’s rock climbing wall, and playing Bohemian Rhapsody so poorly that his sheet music shreds itself out of shame.
Disclaimer: This article is not intended as legal, scientific, or medical advice; reading or commenting on it does not create an attorney-client relationship with the author. The views presented in this article are those of the author and are not endorsed by or representative of Murr Law, PLLC or the legal community generally. As insurance policies vary in their terms and state-specific laws apply, your situation may vary – especially if you obtained a custom policy to meet your business’s specific needs. This article was published on July 2nd, 2020; the law and science governing coronavirus are both changing rapidly, and this article may be outdated when you read this. Consult with an attorney before taking any action on your insurance policy.
 Neeltje van Doremalen et al, “Aerosol and Surface Stability of SARS-CoV-2 as Compared with SARS-CoV-1,” New England J. of Medicine (Mar. 27, 2020).
 Alex W.H. Chin, et al, “Stability of SARS-CoV-2 in different environmental conditions,” The Lancet (May 2020) 1:e10.
 Guenter Kampf, “Persistence of coronaviruses on inanimate surfaces and their inactivation with biocidal agents,” J. of Hospital Infection 104:246-251 (Feb. 6, 2020).
 M.K. Ijaz et al, “Survival Characteristics of Airborne Human Coronavirus 229E,” J. of Gen. Virology 64:2743-2748 (Sept. 4, 1985).
 Jennifer Biryukov et al, “Increasing Temperature and Relative Humidity Accelerates Inactivation of SARS-CoV-2 on Surfaces,” mSphere 5:e00441-20 (Jul. 1, 2020).
 M. Jeremiah Matson et al, “Effect of Environmental Conditions on SARS-CoV-2 in Human Nasal Mucus and Sputum,” J. of Emerging Infectious Diseases (Jun. 8, 2020) (pre-publication version; to be published Sept. 2020).
 Shanna Ratnesar-Shumate, et al, “Simulated Sunlight Rapidly Inactivates SARS-CoV-2 on Surfaces,” J. of Infectious Diseases (Jul. 15, 2020) 2020:214-222 (published online May 20, 2020).
 Houston Cas. Co. v. Lexington Ins. Co., 2006 WL 7348102 at *6 (S.D. Tex. Jun. 15, 2006).