By Aileen M. Leipprandt and Andrew Hilger
Parties use insurance to transfer risks inherent in their business activities. As to potential insurance coverage for business interruption caused by COVID-19, the general outlook is unfavorable as most policies will exclude personal injury or property damage caused by a communicable disease. This gap in coverage is largely attributable to the SARS-CoV outbreak in 2003. After that epidemic, insurance companies introduced a “communicable disease exclusion” with such coverage being offered as a separate policy or rider.
Business interruption coverage is found in your Property Policy which covers costs associated with property damage and lost income as a result of external forces/natural disasters. Even if disease or virus is not a specified exclusion, the insurance policy will typically require physical damage or loss for coverage to kick in. This may beg the question, what constitutes property damage? Does the cost to clean and sanitize a facility after a known exposure constitute property damage? The answer is fact intensive, policy-language specific, and jurisdictionally dependent. And, if you are lucky enough to find coverage, your coverage may be capped at designated sublimits, effectively limiting the exposure to the insurance company.
Construction project owners and contractors using the AIA Insurance – Exhibit A – 2017 may take notice of optional coverages identified in §A.2.4.
- A.2.4.1 Loss of Use, Business Interruption, Delay in Completion Insurance, to reimburse an Owner for loss of use of the Owner’s property, or the inability to conduct normal operations due to a covered cause of loss.
- A.2.4.2 Ordinance or Law Insurance, for reasonable and necessary costs to satisfy minimum requirement of the enforcement of “any law” regulating construction
- A.2.4.5 Civil Authority Insurance, for losses or costs arising from an order of a civil authority prohibiting access to the Project, provided such order is the direct result of physical damage covered under the required property insurance.
The point of the “menu” of insurance options available for parties to select is to prompt an intentional decision about desired coverage. In this author’s experience, rarely are these “boxes checked.” And, even if these policies are in place on a project, the policies still may not afford coverage for the reasons discussed above.