Will Business Disruption Insurance Cover Losses from the Coronavirus?

As the Coronavirus continues spreading, many businesses large and small have shut their doors to help with the quarantine. Those that have not closed their doors may still be looking at considerable losses from the outbreak since supply chains are being affected and the way some businesses are running is also being impacted. Approximately 75 percent of US businesses are reporting disruptions in their supply chains as a direct result of the Coronavirus; this can be easily seen simply by entering your local supermarket and seeing entire aisles with nothing but empty shelves.

Restaurants are limited to takeout only, schools are closed, and public gatherings are either prohibited or discouraged. Even the NBA has suspended its season for this year after a player tested positive for the virus.

Business owners may be expecting their business disruption insurance to cover this, but that may not be the case for everyone.

What Business Disruption Insurance Covers

Business disruption insurance is supposed to help cover a business’ losses in the event of some kind of disruption, like a fire or natural disaster. Usually, the types of things that will trigger this insurance coverage are things that cause some sort of damage to the premises or in its vicinity, or damage to the supplier’s location. Where this can get complicated is if your insurance policy covers disruption in your supply chain, you might be able to get your insurance company to cover your disruption case, but it depends on the specific language of your insurance policy.

SARS Changed the Game

In 2003, following the SARS outbreak, there was an insurance case where Mandarin Oriental International Ltd., a hotel chain, received $16 million from its insurance for losses suffered during the outbreak. The hotels lost all of their business because of the outbreak, and their food and beverage sales also dropped, losing them additional money. The claim was taken to court, and the court ruled that if the insurance covers a notifiable disease, it should cover the losses suffered from SARS.

After SARS and that insurance case, insurance companies everywhere began excluding business disruption losses from a communicable disease. Some insurance companies will allow communicable diseases to be covered, but they must be negotiated into the policy, and even then, they may have a limit to how much they are willing to cover in losses from a disease.

Business Disruption Lawsuit

A restaurant in the New Orleans French Quarter, the biggest tourist area in New Orleans, has filed a lawsuit against their insurance company to attempt to have their losses from the government ordered closure covered. The Oceana Grill’s attorney, John Houghtaling, is attempting to prove there is property damage in this shutdown that should be covered. “Because the coronavirus contaminates surfaces, it’s property damage,” he said. “The coronavirus can stay on substances for many days, so it’s clearly affecting property, it’s clearly contaminating property and that is the trigger for business interruption coverage.”

The emergency declaration filed by the New Orleans mayor this week says that the coronavirus “caus(es) property loss and damage in certain circumstances.” This wording may be a boon in not just this lawsuit, but others that are likely to come as a result of the virus. Time will tell if this lawsuit succeeds.