[Exhibitman]

Refunds are probably the driver, not insurance. Typical business interruption insurance is not going to cover this.

All week long I have been reviewing business interruption coverage for clients with regard to this circumstance. Most any policy written by a carrier who uses ISO forms (the Insurance Services Organization; the company that writes most insurance forms) has a policy that contains endorsement ISO CP 01 40 07 06 “EXCLUSION OF LOSS DUE TO VIRUS OR BACTERIA”. I did some research to try and figure out the interpretations of this provision. In 2006, ISO introduced the CP 01 40 07 06 – Exclusion Of Loss Due To Virus Or Bacteria endorsement. The reason cited in their Forms Filing application in Louisiana was as follows:

“While property policies have not been a source of recovery for losses involving contamination by disease-causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent.

“In light of these concerns, we are presenting an exclusion relating to contamination by disease-causing viruses or bacteria or other disease-causing microorganisms.”

A policy with this endorsement excludes “loss or damage caused by or resulting from any virus” and specifically applies to “forms or endorsements that cover business income, extra expense or action of civil authority.” That effectively prohibits coverage for all of the losses of income a business closed or suffering vastly reduced income due to the pandemic might assert. The operation of this exclusion is considered ‘absolute’, similar to the way the pollution exclusion is written: regardless of what form the loss takes, if it stems from the virus it is excluded.

I also checked to see if we could trigger based on the stay at home order itself or the government rent abatement orders rather than the virus itself. Unfortunately, not. Even assuming the virus exclusion did not apply, governmental order coverage is triggered by physical damage to property near yours that makes it unsafe to enter or that causes the civil authorities to temporarily deny you physical access to the premises. Nor does it cover loss of business due to the event. The ISO property policy typically used with the virus endorsement states:

“Extended Business Income does not apply to loss of Business Income incurred as a result of unfavorable business conditions caused by the impact of the Covered Cause of Loss in the area where the described premises are located.”

“Loss of Business Income must be caused by direct physical loss or damage at the described premises caused by or resulting from any Covered Cause of Loss.”

Everyone who thought private insurance was going to bridge the gap for them and who ended up with a typical ISO-drafted policy is in for a very rude awakening. That said, every policy has tweaks and modifications, so the only way to see what the insurer will do is to make a claim and see what happens. I also hear that some states are considering regulations that invalidate the exclusion for this pandemic. You need to run your policy past your lawyer in your state to get a specific answer.