As the majority of businesses in Colorado and across the country are navigating the new realities of COVID-19 and what it means for their operations, we’re seeing more inquiries about what business insurance options are available to help offset some of the financial burden that businesses are experiencing, like paying rent for space they’re not using due to shelter-in-place orders.
Moody Insurance Vice President Makey Towne was recently asked to join a virtual panel with local commercial real estate experts that explored “Navigating Your Office Lease During COVID-19.” In addition to Makey, the panel consisted of an attorney, landlord, lender and tenant rep brokers who all discussed options business owners can take during this time.
From a business insurance perspective, there are a few considerations to make as you explore options with your insurance provider. As always, we recommend working with a trusted insurance agent who can help guide you through making the best decision for you and your company.
The first place to start is with the policy itself, which is made up of policy forms, or a collection of documents that spell out the coverage, terms, limits, definitions and exclusions of your policy. While each insurance company might add specific language or ‘bells and whistles’ to their policies, the majority of policy forms are similar in nature. They are typically provided by the Insurance Service Office (ISO), a public company that collects data, develops rates and writes policy forms. The ISO forms apply to the vast majority of property policies.
Regarding COVID-19, the five policy forms that you should review include:
- Covered cause of loss
- Business interruption
- Extra expense
- Civil authority
- Contagious disease exclusion
Covered cause of loss spells out what type of events are covered or excluded as a result of direct physical damage to the property, including activities such as fire or water damage. In order for business interruption, extra expense or civil authority coverage to apply, there must first be covered cause of loss. Unfortunately, the prevailing interpretation right now is that COVID-19 has not caused direct physical damage to a property, hence no applicable coverage.
Because of the large scope of COVID-19 business interruption losses, however, there is no doubt this position will be challenged legally, much like flood insurance was challenged after Hurricane Katrina. It is possible the courts will rule against the insurance providers’ interpretation of the coverage. There is also a movement among many state legislative bodies – including Massachusetts, Ohio and Georgia – that are looking into mandating insurance companies pay business interruption claims.
So, what are your next steps?
- Talk to your insurance agent. Similar to how you should be talking proactively with your landlord about rent relief if needed, we recommend communicating early with your insurance provider. Review your policy with your insurance agent and determine if the best course of action is to file a claim. Also discuss the merits of formally reporting a claim, which could include establishing a legal standing should the courts make preferential rulings at a later date. Applications for grants or bail-out funds may require a declination of coverage. While not likely, it is also possible that your insurance carrier may have a different interpretation and actually pay the claim.
- Review your underlying exposure. Policy premiums are developed from your underlying exposure, including sale forecasts, payrolls and expenses like rent. If your anticipated exposures have decreased, you may be able to adjust them and, in turn, reduce your premium. There’s no reason to pay a premium for overestimated exposure or for limits that are no longer applicable.
- Hang in there. Much like with the virus itself, this is uncharted territory for all of us. While we don’t know how this will all end, we are committed to being your advocate throughout the process.
As the insurance industry is navigating this new reality, there will inevitably be changes to policies moving forward. While it’s too soon to tell, there is potential that the insurance industry and federal government will craft something similar to the TRIA (Terrorism Risk Insurance Act) after the 9/11 attacks that would help cover events like this in the future. At a minimum, there will most likely be a sub-limit that insurance companies put into their policies that cover events like this up to a certain amount. Regardless, we will continue to assess new policy forms that specifically cover health crises like pandemics and help educate our clients on the best way to use them.
We know that many businesses are being affected right now, and we want you to know that we are here to help however we can. If you have a specific question, we encourage you to reach out directly to your insurance agent.