Will P&C Insurers Be on The Hook for Business Interruption?


The P&C insurance industry might not be as immune to COVID-19 as previously assumed. Although many P&C policies exclude losses caused by communicable diseases, insurers may still end up on hook for coronavirus-related business interruption.

Business Interruption Like Never Seen Before

Right now, an unprecedented number of businesses are dealing with business interruption due to the coronavirus pandemic. Many states are under “Stay at Home” orders. In these states, people are supposed to stay home unless they’re going out for essential needs, like getting medical care or buying groceries. California, New York, Illinois, and Washington are among the states that have some sort of stay-at-home order in place. According to CNN, as of March 24, at least 50 percent of the U.S. population is officially being urged to stay home.

Many businesses are being ordered to close, and others are closing their doors willingly. Numerous events have been cancelled, as well. Businesses that rely on crowds of people – like bars, clubs, theaters and gyms – are highly impacted, but many other retailers are also feeling the effects of coronavirus. According to Business Insider, more than 90 major retailers have announced temporary closures so far.

How P&C Insurers Could Be on the Hook

Many P&C insurance policies include clauses that provide business interruption coverage. If a business is unable to operate due to a covered reason, the business interruption insurance replaces the lost income so businesses can keep up with their ongoing overhead expenses and get back on their feet as fast as possible.

Common causes of business interruption include fires and severe storms. Now we’re about to see if pandemics can also trigger claims.

According to an Insurance Information Institute article from April 2019 – months before COVID-19 turned the world upside-down – business interruption insurance likely wouldn’t cover an epidemic because coverage often requires property damage.

This assumption is now being put to the test.

RiskGenius conducted an analysis of policies and found that up to 80 percent of commercial insurance policies do not have communicable disease coverage or exclusion. As a result, these policies may be interpreted as having silent pandemic coverage – coverage may be determined to exist because it is not specifically excluded. This is similar to what has already been seen with silent cyber coverage.

Not all insurance policies are silent on communicable diseases, however. Some policies include an exclusion for losses related to viruses or bacteria.

But even having a clear exclusion might not shield insurers from claims. According to Carrier Management, New Jersey Bill A-3844 would provide a way for small businesses in the state to recover coronavirus-related business interruption losses from their insurer. The law would go into effect retroactively, and it could alter policies – even those with exclusions for communicable diseases.

Insurers may also face lawsuits over coverage. In fact, the lawsuits have already begun. According to Insurance Journal, a New Orleans restaurant filed a lawsuit asking a judge to issue a declaratory judgement as to whether its business interruption policy will cover losses if it is forced to close by order of civil authorities due to coronavirus. 

What Does It All Mean?

The COVID-19 situation is still developing, with new updates every day. Many things remain uncertain.

However, if P&C insurers are on the hook for coronavirus-related business interruption claims, the losses will likely be huge. According to The Hill, the restaurant industry alone has anticipated losses of $225 billion due to reduced sales over a three-month period.