Karen Lee has paid for business interruption insurance since she opened Breathing Time Yoga Inc. 19 years ago.
But it wasn’t until a few weeks ago when she shut down the Pawtucket yoga studio and moved her classes online that she read the fine print on her policy.
And what she found was that the economic hardships she is facing amid the new coronavirus crisis, seemingly the very definition of interruption to business, are not covered by her policy. Her reaction?
“I was really annoyed to find out my business interruption insurance is not going to cover this,” she said. “It is absolutely a disaster and my business has been interrupted.”
She is not alone.
Standard business interruption insurance policies require physical damage to insured property under specific, outlined circumstances such as natural disasters or vandalism. While certain insurers may provide limited coverage for physical contamination, which could in theory cover a workplace where someone tested positive for COVID-19, most policies specifically exclude disease and pandemic circumstances, according to Joseph Padula, managing director of property and casualty insurance for Hilb Group of New England LLC.
Manufacturers whose supply chains have been disrupted could also receive coverage under a specific type of policy known as contingent business interruption insurance, which lets businesses transfer risk of losses to a third party. However, like standard interruption policies, this coverage usually requires physical property damage.
‘You can insure anything ... but no one really foresaw this.’
JOSEPH PADULA, Hilb Group of New England managing director of property and casualty insurance
Asked if there were any policies that could apply to the intangible economic challenges facing businesses under these circumstances, Padula said, “Truthfully, no.
“There has not been a demand to insure the risk, so the insurance market hasn’t focused on it,” he said. “You can insure anything ... but no one really foresaw this.”
In the aftermath of the pandemic, new policies could be developed, similar to what Lloyds of London rolled out in 2014 in response to the Ebola epidemic, according to Loretta Worters, vice president of media relations for the Insurance Information Institute. Worters anticipated that these so-called parametric policies would be costly and wouldn’t retroactively apply to the hardships businesses are already facing, which Worters likened to insuring a burning building.
Padula also noted that insurance companies might consider putting in a small coverage sublimit – up to $100,000 – to cover pandemic situations as a way to “retain some good will with the policyholder.”
In the meantime, business owners have other avenues for relief, including potentially through legal action. While most policies specifically cover physical injury, courts have not come down on exactly what that means.
“There could be recourse to stretch the definition of the term,” said Greg Tumolo, senior counsel and head of employment law for Duffy & Sweeney Ltd. “It’s all fluid right now. We are in uncharted territory.”
“It looks black and white oftentimes, but that’s not always the case,” agreed Jean Harrington, a partner at Duffy & Sweeney who chairs the business law team.
Tumolo expected to see an increase in litigation from business owners challenging insurance policies in the coming weeks and months. These kinds of cases are usually settled out of court, but he wasn’t ruling out some would go to trial.
“It is foreseeable that insurance companies may want to clarify certain things regarding liability under policies and not settle to see what the courts are going to say,” he said.
Padula reported several clients had filed claims relating to their insurance policies, though none were interested in being interviewed for this story.
Lee was unaware of the potential for legal recourse but said she was interested and planned to ask her lawyer. That said, she was also busy with the transition to an all-virtual set of classes, which she reported were going well, despite a few technical kinks to work out. The studio was up to three classes daily with some attracting two dozen participants, including out-of-state yogis.
Another path to insurance policy coverage could be legislation. A New Jersey state lawmaker in March introduced a bill that, if approved, would require general property insurance policies for businesses with 100 or fewer employees to also cover economic losses related to COVID-19 or other viruses.
Rep. Joseph McNamara, D-Warwick, announced on March 31 that he was drafting similar legislation to be introduced in the General Assembly, with plans to fast-track the bill as soon as the lawmakers reconvene.
Recalling his own frustrations with lack of coverage during crises he faced as a small-business owner, he said denying businesses who purchased interruption insurance now went against the intent of the policy.
Successful legislation to force insurers to cover COVID-19 losses could have its own economic consequences, potentially forcing insurance companies to go out of business, Worters warned.
“Moreover, if you have insurers paying for coverage that was not bought ... they would never be able to pay on all the other lines of insurance,” she said in an emailed statement. “It would be a disaster not only affecting insurers but their other customers.”
McNamara, however, said this was crying wolf.
“If you’re going to sell business interruption insurance, have the intent of covering unanticipated interruptions when they occur,” he said. “Otherwise, do not get engaged in selling that product.”
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
