Coronavirus Legal Issues Around the World, Part 4: Business Insurance Coverage

For the last three or so months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle is the United States’ coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and last week went into a full lockdown. Our California and Oregon lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.

The coronavirus does not discriminate, though sadly, people do. See Do Not Blame Chinese People for the Coronavirus. No Exceptions. The coronavirus also does not discriminate in the impacts it has on people, societies and economies and this has meant that our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border legal team out of the United States, China and Spain to assist companies around the world with their legal issues arising from or related to the coronavirus. This multi-disciplinary and multi-jurisdictional team is using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.

In this series of posts, we will be discussing the legal issues our lawyers in China, the United States, and Spain have been seeing/working on, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.

In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise with the most frequency. In Part 2, we looked at the second most common issue we have been seeing arise from the coronavirus: force majeure. In part 3, a couple of our international trade lawyers analyzed how the coronavirus is impacting tariffs and duties in the short term and how it will likely impact tariffs and duties and global trade going forward. In this part 4, we brought in one of our insurance coverage lawyers, John McDonald, to discuss the big insurance coverage issues our lawyers are seeing stemming from COVID-19.

Articles abound about the effects Coronavirus has had on everyday personal life.  Many individuals are self-quarantining or self-isolating, many (most?) workers are working remotely and many businesses have been forced to shut their doors to the public.  A collateral effect produced by these circumstances is how businesses—both large and small—will be affected by the virus, and whether those businesses may seek insurance coverage for their loss of time or their inability to access supplies during this unprecedented event.

This post explores how businesses may or may not have “business interruption” coverage for their loss of time, and how businesses with an international supply chain may or may not have “supply chain” coverage for their inability to either ship or receive goods and/or parts.  In short, there are various types of coverage available to these businesses, and the coverage available to them will in large part depend on the language in their business insurance policies.

Business Interruption Insurance

As a result of the virus, many businesses have been required to shut their doors to the public by local and state governments and there is no certainty as to when they will be able to re-open their doors.  Other businesses that have not been forced to shut down in the wake of the virus are nevertheless experiencing steep drop-offs in business as a result of many consumers self-quarantining or self-isolating.  These circumstances have led many to predict a recession in the near future and lately many are saying most countries are already in one.  If your business is one of the many that is experiencing a business slowdown due to the virus, you should check your business insurance policy (if you have one) to see if it has “business interruption” coverage for this event.

Like all other insurance, business insurance is governed largely by the language of any particular policy.  The “business interruption” coverage in some (and most) Commercial Property Insurance Policies requires actual physical damage to or loss of the covered property.  Businesses should check their business insurance policies to see if any suspension of their business requires “direct physical loss of or damage to property.”  If your policy includes such language, your insurer will likely claim that its commercial property insurance should have no coverage for any suspension of your business as a result of Coronavirus, because the virus has not caused any direct damage nor loss to your insured property.

Other business insurance policies, however, have special endorsements—for a higher premium—that cover business interruptions not caused by physical damage to or loss of commercial property.  These endorsements can extend coverage to anything from cancelled bookings and even specifically disease. Business insurance policies that have this sort of an endorsement allow policyholders to argue that their business interruptions caused by the Coronavirus should be covered under their policy.

Supply Chain Insurance Issues

Businesses are also facing serious issues stemming from disruptions in their supply chains, both domestically and especially internationally as a result of the Coronavirus. These businesses should also look to the terms of their business insurance policies to determine whether “supply chain” coverage is available to cover the losses they are sustaining as a result of the pandemic.

Like most “business interruption” coverage, “supply chain” coverage often extends, in the first instance, to some physical damage to or loss of a business’s supply chain. Insurers will likely again argue that those policies should not apply to business interruptions as a result of a virus. Many sophisticated businesses these days, however, have obtained insurance coverage for disruptions in their supply chains that cover non-physical damages.

This coverage is often limited to a named supply or supplier in the business insurance policy, but it can be extended to a wide variety of covered “events.”  Those events can extend coverage to non-physical damage as a result of work stoppages, civil action, regulatory action, and even pandemics. Those businesses operating both domestically and abroad that rely on a supply chain and have business insurance coverage should examine their insurance program to determine whether they have coverage from their insurance carriers for supply chain disruptions as a result of the Coronavirus.

Whether or not a business affected by the Coronavirus may seek coverage under its current business insurance policies will depend on the specific language in those policies.  Creative policyholders should look to the terms of their coverage forms and any applicable endorsements to see if any provisions (such as those discussed above) can or should apply to these unprecedented times. What we are finding is that insurance companies are, for the most part, acting during the coronavirus just as they always acted before the coronavirus: they are mostly declining coverage and forcing their policyholders to hire a lawyer if they want to see dollar one.

In any event, those businesses currently affected by the Coronavirus who wish to insure against any other similar unfortunate future events should build the contingent coverage discussed above into their insurance programs.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.