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Will Virus Insurance Save The Day Where Business Interruption Coverage Failed?

virus insurance

When the coronavirus pandemic exploded last spring, the economy came to a screeching halt. The combination of stay-at-home orders and depleted consumer confidence cost many businesses. Forced to close their doors, these companies turned to business interruption insurance coverage. For a number of reasons, these policies were insufficient to make up for lost revenue. Insurance companies denied payouts and courts often agreed. But is there new virus insurance on the horizon? And what will this coverage mean for companies defending against future claims?

Huckleberry Insurance is one company promising new virus-related insurance coverage. The company sells insurance in 26 states. They recently announced virus-related supplemental insurance to be added to their regular small business coverage. The company is promising a roll-out of the insurance in the first quarter of 2021.

The Pandemic Business Interruption Plan, as Huckleberry calls it, promises to do what standard business interruption coverage often did not. Under the insurance coverage, businesses receive a payout for losses from government-mandated shutdowns. The insurance kicks in after a 7-10 day waiting period following such shutdowns.

This is in addition to standard business interruption coverage. The latter covers losses from fires and busted water pipes. But courts in several jurisdictions have already decided that such coverage does not pay for virus pandemics. A number of lawsuits against insurers have already been successfully defeated.

Higher rates of infection at the time of signing up for the insurance will translate to higher premiums. Pricing is still being finalized. However, Huckleberry estimates policies will begin around $250 per month. That can buy coverage of about $3,500 per month.

Standard business interruption insurance is about $40 to $130 a month, according to online insurance broker Insureon. Huckleberry says that the current high rate of COVID-19 infection is pushing estimated premiums up. This should change once the coronavirus ends. The company estimates that coverage against future epidemics could be as little as $5 to $10 a month.

There are a few downsides to the Huckleberry plan:

  • You can’t purchase insurance once a lockdown is already in place
  • The policy has a 12-month term, not a month-to-month one
  • At first, only customers with a standard business interruption plan through Huckleberry will be eligible
  • Only complete government shutdowns are covered (restricted seating at restaurants doesn’t count)

Huckleberry is not the only company trying to come up with ways to address virus-related losses. After the disputes over business interruption plans last year, other insurers are working on plans. There are even proposed government-industry collaborations that would combine emergency relief and insurance coverage. For its part, Huckleberry plans its own insurance apart from any government programs.

It will be interesting to see how many other companies jump on this potential business opportunity. Hopefully, the insurance won’t have to be tested with another global pandemic. But if it is, there are certain to be coverage issues. And policyholders will have many questions about whether their insurance applies. What level of government (local, county, state, federal) would have to issue a shutdown? What, really, is a “complete government shutdown” (is it a black and white question)? Will the insurance program have enough money to pay claims?

While it’s relatively clear what this policy would cover, real-world experience suggests potentially more complexity. Undoubtedly, there will be lawsuits over this insurance, as there are with all forms of insurance. If you’re an insurance company that gets sued over this or other types of insurance, you need good legal representation.

Rosenbaum & Taylor handles insurance defense litigation in New York. We’re ready to meet the challenges facing your insurance company now and in the future. If you have questions about how we can serve your organization, call today to learn more.

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