COVID-19 Small Business Insurance
Survival Guide

Check your individual policy, but there may be bad news.

After the 2003 SARS epidemic most insurance policies added a clause which excluded them from covering companies with business loss policies in the event of an epidemic or pandemic.

Some states, like New Jersey, are trying to enact legislation to make them pay anyway.

The insurance industry argues that having to be responsible for billions of dollars of coverage that was not accounted for in their premiums could collapse the industry. Lawmakers are responding by saying insurance providers have to be at least part of the solution.

It's uncertain where this will all shake out, but for the moment your business interruption policy is not a good thing to rely on.

No. Just as you can't purchase life insurance on a person that already died, you can't buy business insurance coverage for a loss that has already happened.

Commercial insurance companies require you to attest that you have "no known losses" before they will issue a policy. A claim filed for a Coronavirus (COVID-19) loss that took place before the policy was in force will be denied.

It's possible.

Workers Compensation Insurance

If an employee contracts coronavirus, is my business liable for related healthcare and other costs?

You won't be sued, but in some states this can make them eligible for workers compensation insurance. However, most workers comp policies don't cover "ordinary diseases of life." Since COVID-19 is novel, we don't know how it will be classified.

Any workers comp claims require employees to demonstrate that the COVID-19 illness arose both out of and in the course of their employment "on the job" while interacting with clients, customers, coworkers, or vendors. If employees can't show this, the claim will be denied.

There are two conditions that must be met before any illness or disease (including the Coronavirus) is classified as occupational and then is eligible to be covered under worker's compensation:

1. The illness or disease must be occupational - it was acquired while 'on the job'.
2. The illness or disease must arise out of or be caused by the conditions unique to the work being done.

An easy way to think about this is - Was the employee benefitting the employer when exposed?

Other states are only allowing claims from health care providers and first responders. Check your state's workers compensation and COVID-19 guidelines.

If you any of your employees have contracted the Coronavirus, contact your workers compensation carrier's claims department to start the claims process.

You should also have a conversation with your insurance agent about the specifics of your workers compensation policy, how COVID-19 could impact your premiums, and what you can do to improve workplace safety so as to reduce pandemic claims.

Key Person Life Insurance

Key person insurance could step in if COVID-19 has taken the life of named officer of your company.

As of March 2020, there are no business insurance policies explicitly offering coverage for COVID-19 Coronavirus.

However, there are ways that you can limit losses:

• Allow employees to work from home
• Cancel nonessential meetings and travel
• Enforcing strict employee safety guidelines
• Offering services like webinars, phone conferences and delivery
• Safety precautions to guard against exposures using the latest hygiene standards
• Social distancing of employees and customers

As it turns out, there are already a number of economic relief opportunities.

First, you can look into an SBA economic injury disaster loans. Small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to Coronavirus (COVID-19). You can use the loan to pay fixed debts, to make payroll, to pay bills, and to pay employee sick leave. According the SBA Disaster Loan website:

You can check whether your state is on the list by visiting the SBA Disaster Loan Assistance Portal.

If you're not eligible for a disaster loan you may be able to find relief in other ways. For example, many banks are offering payment arrangements or payment holidays to business owners. If you lease your business location you may get relief from your landlord.

The pandemic has created a question. How will coverages respond to the losses suffered? Business Income is the most prominent coverage in question. We will take a look at it and other coverages such as Civil Authority, Cyber, Employers Liability, Workers Comp, and General Liability.

Another issue introduced to businesses due to the pandemic is that some companies had to change business models to meet new consumer demands. When a new operational exposure is added, it can wreak havoc. If a loss is sustained, the insurer is unaware of changes and the new operations are excluded.

Business Income

One standard coverage form defines Business Income as net income that would have been earned or incurred and continuing normal operating expenses, including payroll. Business income for manufacturers includes the net sales value of production. The coverage will pay for the actual loss of business income from the time that a covered loss interrupts operations until the time that operations can be resumed (usually referred to as the period of restoration).

A critical consideration is typical policy language. Closure must be caused by a direct physical loss of or damage to property at a described location and must be triggered by an eligible source of loss.

Some commercial policies expressly exclude infectious disease, or viruses. If the insurance policy excludes viruses and infectious diseases, then no coverage applies.

Some businesses suffering income loss have challenged what is meant by direct physical loss. Some have argued that the virus may be a form of physical damage because it can remain on surfaces for an unknown time period. The counter argument has been that, even if it were deemed physical damage, the situation is remedied by cleansing affected surfaces.

Another argument has been made that business income should be granted when a policy does not specifically mention viruses or infectious diseases. However, while silence on a given peril might trigger coverage in certain situations, Business Income protection still requires that operations be interrupted by a covered cause of loss.

Yet another strategy for pursuing loss involves reliance on an insurer's reimbursement as a reasonable expectation and there is pending litigation.

Court decisions today will set the stage for future lawsuits and future policy language. Regardless, the pandemic is having a drastic impact on insurers, insureds, premiums, and coverage interpretation.

Business Income From Dependent Properties

A dependent property is one that is operated by another business the insured does not own or operate, and the insured's business depends on it to deliver materials or services. If a company experienced an income loss because of a supplier, and they selected optional Business Income from Dependent Properties coverage, they may be protected.

As is the case with basic business income coverage, the supplier's operations must suffer a covered direct physical damage loss for the coverage to apply. Any coverage lasts only for the time it takes the dependent property to re-start its operations.

Further, typical coverage includes a “deductible” in the form of a waiting period (such as 72 hours from a loss date) before coverage is available.

Civil Authority

Civil Authority may be another coverage in question. It is usually included as an additional coverage under a property policy. The problem with turning to this coverage is that the damage must occur at a property the insured does not own and the damaged, non-owned property must be located quite near to the insured's described property.

Also, the civil authority's action must be a direct result of a cause of loss that is eligible for coverage under the insured's policy.

This is intended to cover income loss when civil authorities bar access to an area immediately surrounding damaged property that also prevents access to an insured premises. Obviously, keeping customers from insured property creates a separate source of loss.

There is usually a 72-hour waiting period for an endorsed coverage form. With that said, this coverage is unlikely to assist with pandemic closures.

Cyber

Cyber loss exposures have increased due to the pandemic. Many businesses were not prepared for the pandemic, let alone having their entire staff working from home. They did not have a continuity plan in place, so they may have scrambled to put one together.

Details can be overlooked under such circumstances, which may result in greater cyber-attack penetration. One strategic response for many businesses was to allow employees to work from home.

Employees working from home pose a greater risk regarding the handling of sensitive information. Businesses have trade secrets; they may collect and store customer's private information. A company is less able to monitor the security of its proprietary and sensitive information when an employee works remotely. They must depend on their employees to adequately protect the safety of the data by having the right Internet security.

Since many employees use personal internet providers, a company is unable to monitor the employee's computer virus protection or if they even have virus protection. Company data is at a higher risk for cyber infiltration when employees are not working on the company's network.

Businesses that wish to protect their data must have the right equipment and software programs in place to accommodate remote workers.

Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance (EPLI), is also known as Employment-related practices liability (ERPL), management risk protection, and employers' errors and omissions. Employers of every size have EPLI exposure.

Allegations by current and former employees may involve anything from unfair discrimination to wrongful termination. During the pandemic, more than 21 million people lost their jobs, increasing the EPLI exposure for every business.

While the Federal Government provided additional assistance to the pandemic-related unemployed, there still existed many situations which could result in EPLI losses. Unfortunately, government assistance is imperfect.

Some workers did not receive full benefits. Others may have received full benefits, but not for a sufficiently long period. Regardless of reasons for any benefit shortcomings, workers may hold their employers responsible.

Some businesses did not fully recover to bring back every employee, or they did not recover at all. This resulted in companies either laying off or terminating employees. Emotions run high when a person loses the ability to support themselves and, if applicable, their family.

Employees may question whether companies made such decisions legally and fairly. Every proper step may have been taken when making decisions, but a lawsuit can still ensue.

In times like these, EPLI should be a highly recommended coverage for all businesses. It is designed to assist with defense costs and related indemnity awards. Coverage for intentional illegal actions by individuals is often excluded. However, protection may remain for allegations that an employer improperly responded to excluded acts of a given employee.

Typically, EPLI policies bar coverage for Criminal, Fraudulent or Malicious Acts, Contractual Liability, Workers Compensation and Similar Laws, Violations of Laws Applicable to Employers, Strikes and Lockouts, Prior or Pending Litigation, and Prior Notice of a claim. EPLI forms usually provide supplemental payments for Pre and Post judgment interest.

Defense coverage is included in the policy limits. Therefore, applicable coverage may be eroded or exhausted, terminating protection.

Workers Compensation

Workers Comp insurance covers bodily injury by an accident or bodily injury by a disease, including death that results from either. Only bodily injury that arises from the named insured's employment and during the course of that employment is covered. Proving whether an employee is in the course of employment is often a major issue for both workers compensation and employer's liability.

When bodily injury occurs as the result of a disease, it must be the result of conditions that fall squarely within the named insured's employment. The condition can either cause or aggravate a disease. The named insured for which an employee is working on the last day of exposure to the conditions which take place, is the named insured that must respond.

The policy in force at the time the employee is working during the last exposure is that only one that will respond. Legal action against the named insured for bodily injury by accident or disease must be brought in the United States of America, its territories or possessions, or Canada.

There are several areas where the pandemic might create loss under a Workers Comp policy, but whether coverage is available will depend on the state. Employees could have been exposed to the virus by a customer or a coworker. If this happened, all parties exposed were to self-quarantine for 14 days.

However, will the worker's comp policy cover their payroll for the 14 days? What if the employee begins to exhibit the symptoms and becomes ill enough to need medical treatment, be hospitalized, or dies? What if several or all employees are exposed, become sick, or die because of the virus?

These are all valid questions that cannot, currently, be answered with certainty.

Coverage will depend on how each state interprets the virus. If the state considered it an occupational disease, then coverage may exist. However, if it deemed it a nonoccupational disease, then coverage will more than likely not be provided. This means that the virus is considered a communicable disease, just like the flu or a common cold.

At the time of this writing, only the state of Washington implemented laws that Workers Comp will cover employees for the virus. Other states may follow. A changing environment makes it critical to adhere to a given state's workers comp policy guidelines in the event of a loss.

General Liability

General liability insurance covers bodily injury or property damage that the insured becomes legally obligated to pay. Bodily Injury commonly refers to sickness or disease sustained by a person, including death as a result.

The insurance company agrees to pay amounts the insured is legally obligated to pay as damages for bodily injury that is covered, but only if the loss is caused by an occurrence that takes place in the coverage territory and occurs during the policy period.

It also has the right and duty to defend the insured against any suit that seeks those damages. However, this right and duty are only for those suits that seek damages covered by this insurance. It is important to understand that GL is not a first-party coverage and does not apply to Employers Liability or Pollution.

COVID-19 has affected all of the United States in some fashion. Many have contracted the virus, but the symptoms are from one end of the spectrum to the other. Some have only exhibited mild flu like symptoms, and others have died. Currently, it appears that most COVID-19 deaths are not asymptomatic, meaning they had one more other underlying health issues too.

So, the question becomes, did COVID cause the death, or did it aggravate another health condition? However, if the person had not contracted COVID-19, would they still be alive? Is something else responsible for the illness or death?

Professionals have more questions than answers too. If we read the policy language, though, it does not appear to separate some of these questions. The debate will more than likely be about where the person contracted the virus.

Businesses that remained opened during the pandemic and businesses that reopened during state phases of reopening could be held liable if a patron becomes ill due to the negligence of the insured. The key is that negligence needs to be proven. The problem with the claim will more than likely be about where the patron picked up the virus and was the business negligent.

How can a person know for sure and precisely where they contracted the virus? Where were they 14 days before the illness? Could every business that they visited be responsible for the customer's sickness or death?

What if the company can provide proof that they were adequately cleaning after each customer? How will the responsible party be singled out? If a business is not practicing the CDC guidelines, they could be in trouble. All in all, negligence will be difficult to determine.

With that said, an option for carriers could be to use Medical Payments coverage. This could help eliminate some questions since the coverage does not require the establishment of fault. However, there are stipulations for this coverage to apply. The accident must occur on the insured premises the insured owns or rents during the policy period.

Medical payments coverage does have a few essential exclusions to keep in mind, though. All of the exclusions are not mentioned in this article. We are only addressing exclusions that could apply to the pandemic, so please be sure to consult the policy for a complete list of exclusions.

Medical Payments do not apply to any insured, except for volunteer workers. It does not apply to any person hired to do work for the insured, or any tenant of the insured. There is no coverage for injury that occurs on a normally occupied premise, meaning the person injured normally occupies that part of the premises the named insured owns or rents. It will not apply to workers compensation or similar laws and no coverage for athletic activities.

Change in Operations

The pandemic forced many businesses to rethink their business models to remain viable. While many businesses failed, others found ways to navigate the problems created by the health crisis. Some companies changed the type of items being sold but did not actually change their operations, and others may have made drastic changes to their operations.

If a business was manufacturing beer and then decided to start making hand sanitizer, an insurer needs to know. The insurer may be a market for manufacturing beer, but they may not be a market for producing hand sanitizer. It's the same for a car part manufacturer that decides to begin making medical respirators or face masks.

The new exposures may be too high for an insurer to continue, or they may need to increase the premium by adding the new exposure. On the other side, maybe a business decided to move into selling groceries instead of prepared foods, or a restaurant may have decided to sell a different kind of food that was in higher demand.

If the exposure is low in hazard and incidental to the current operations, then it may not be an issue; however, if it is more than incidental, it could create changes in coverage or premium. Regardless, if there is a change in operations, the insurance company should be informed to prevent gaps in coverage.

Changes in operations could result in a premium increase or decrease, or it may remain the same. For an insurance company to remain solvent, they must obtain the appropriate rate for the risk. General Liability rates are based on the type of operations, annual revenue or square footage, and the coverage needed or desired.

As well, though, there may not be coverage for the new operation or product if the policy excludes it. However, it does not mean that it cannot be covered; it just means adjustments may need to be made to the policy.

There is an area of concern with some of the operational changes. Many restaurants and businesses began delivering to homes and other businesses. Some partnered with third party vendors, while others decided to have their own employees, driving their own vehicles, deliver the product. Unfortunately, delivery by employees with their own vehicles is not a desirable exposure for most insurers.

It is an exposure that requires diligent underwriting and much cooperation from the insured, and not all carriers are willing to provide this type of coverage. There are many restrictions and risk control factors to consider for an insurer to agree to cover this type of risk. This is due to the significant increase in exposure and hazard created.

The auto market is struggling to maintain profitability, so adding delivery exposure could create unwanted action on the auto the policy.

Further, food delivery is typically a costly exposure and coverage that many businesses opt out of due to the cost and restrictions. Also, the employees personal auto coverage may very well exclude delivery.

If delivery is excluded from the insureds policy and the employee's policy, then it will put the business at risk if an employee is involved in an auto accident while making a delivery.