Communicable Disease and Bacteria and Virus Exclusions May Detrimentally Affect Business Interruption Insurance Coverage
The coronavirus outbreak and the necessary response to it has put an incredible strain on small businesses and has already caused substantial unforeseen loss. The risk of unforeseen loss is what encourages the purchase of and reliance on insurance. In this case, many individuals will look to the business interruption provisions in their business property insurance policies. Such provisions can in some circumstances provide coverage for business income loss. (For more information about business interruption provisions, go here and here.) There are two important exclusions that could detrimentally affect the possibility of coverage in many different types of policies for many different types of coverage including business interruption, general liability, professional liability, and others. These two exclusions are the Communicable Disease exclusion and the Bacteria and Virus Exclusion.
Communicable Disease Exclusion
The Communicable Disease Exclusion is found in some policies or could have been added as an endorsement to others and generally excludes bodily injury, property damage, and personal and advertising injury arising out of the actual or alleged transmission of a communicable disease.
Bacteria and Virus Exclusion
The Bacteria and Virus Exclusion generally excludes coverage for damage caused by the transmission of bacteria or viruses. There are many different variations of this exclusion. Some exclude coverage for both damage caused by or threat of the transmission. Others exclude coverage specifically for damage caused by bacteria only or viruses only. Some are also specific as to what type of damage caused by bacteria or viruses is excluded. For example, some might exclude coverage for business income lost or property damage explicitly.
State Actions Addressing These Insurance Exclusions
It is possible based upon the language of a particular policy that the exclusions do not extend to business interruption coverage. However, it is likely that many small businesses will not be able to receive coverage for their lost income as a result of these exclusions. It is for this reason that some states are taking action to address these exclusions. For example, a bill is being developed in New Jersey, NJ Draft Bill A-3844, which would require insurers to provide coverage for loss or damage to property, including business interruption coverage, which results from COVID-19, essentially voiding any virus exclusions. The bill is currently being drafted to be applicable retroactively to policies in force on March 9, 2020. This is a small business centric bill because it would only apply to policies issued to businesses with less than 100 full-time employees.
There is no current discussion of similar small business bills in California. However, if New Jersey passes its bill and is successful, other states may follow and do the same.
If the coronavirus outbreak has impacted your business, you should immediately review your business and/or property insurance policies to see what kind of coverage you have. The Law Offices of Scott Glovsky is happy to conduct a complimentary review of your business insurance policies to advise you about your business interruption coverage. Please call us at (626) 604-6973.