Important Information Regarding your Insurance and Covid-19
To try and address the numerous concerns of our clients, we have prepared this report as an overview and to answer as many questions as possible about the Covid-19 situation. Please reach out to us for clarification or with any other questions that arise.
Our office will remain open throughout this crisis; however, starting Tuesday 3/17, most of our employees will be working from home. All direct-dial office lines will be forwarded and our staff will, of course, be accessible by email to respond to all of our clients’ needs.
INSURANCE COVERAGE FOR LOSS OF BUSINESS INCOME RELATED TO COVID-19 SHUTDOWNS
While every insurance policy and associated claim is different and requires an independent review to assess coverage, there are certain general facts we can relay. Regrettably, we do not expect that standard insurance policies will respond to the loss of income that retail businesses will incur during this crisis.
Business Income (BI) coverage is normally only triggered as a result of a direct physical loss or damage to property that is not otherwise excluded by the policy. This presents at least two potential coverage hurdles. First, most businesses will not see any direct physical damage to their property as a result of the virus. For premises that might be determined to have been contaminated by the virus itself, most policies include language that specifically states that contamination by a virus or bacteria does not constitute physical damage. For these reasons, traditional business income coverage is highly unlikely to respond to this event.
Most policies include an additional coverage for loss of income related to shutdown ordered by a civil authority. However, this coverage is limited to situations where the shutdown is necessitated by an off-premises event that is a “Covered Cause of Loss” on the insurance policy – ie. the same type of covered property damage described above except that in the case of civil authority shutdown, the damage can occur away from the insured’s premises.
We are aware of legislation being considered in New Jersey to retroactively amend insurance policies written in that state to redefine contamination by a virus as a covered cause of loss. Other states, including Michigan, will undoubtedly consider similar legislation. While this would be welcome news for our clients, we don’t believe that these legislative efforts hold much hope as the retroactive rewriting of a private contract by lawmakers involves a host of concerns that would have to be worked out by the courts. We will keep our eyes on these developments and report anything of potential interest.
IMPACT OF COVID-19 RELATED REDUCTIONS TO SALES AND PAYROLLS
We know that many of our clients will have reduced revenues and payrolls related to this situation.
All work comp policies are auditable based on payroll. You can wait until the end of your policy term and allow the premium to adjust downward at that time based on the final audit, or you may contact us before then to discuss a midterm reduction to the estimated payroll which will result in an immediate reduction to the premium.
Some (but not all) general liability policies are subject to audit. In some cases, carriers may base liability premiums on estimated sales or payroll but not perform end-of-year audits. For this reason, if you are a retail or hospitality business and expect to have significantly lower sales this year, we recommend contacting our agency to discuss whether a mid-term reduction to your sales estimate is warranted. Note that some carriers do not use sales as a premium basis so this may not affect all of our clients.
If you are a contractor, your liability premiums are likely based on sales and payroll and in virtually all cases, those figures will be subject to audit at the end of the policy term. You may still be able to reduce them mid-year.
INFORMATION SPECIFIC TO OUR RESTAURANT/HOSPITALITY CLIENTS
Many of our clients have asked about liability issues related to delivery exposure considering the state’s ban on sit-down restaurant service. If you can utilize a third-party service such as Grubhub or DoorDash, this is the safest and most practical way to avoid the increased exposures created by delivery services.
If you wish to utilize your own employees for delivery, we recommend contacting us in advance so that we can discuss whether you have the proper coverage and procedures in place before beginning delivery services. In most cases, we will be able to confirm you are covered and with implementation of some relatively simple procedures, you can commence delivery operations quickly.