Covid-19 Losses Not Covered By Business Interruption Policies, Puerto Rico Regulator Says
Deputy Insurance Commissioner Contends Coverage Only Triggered By ‘Physical Damages’
SAN JUAN – Business interruption insurance does not cover financial losses resulting from mandatory closings such as the one stipulated in Gov. Wanda Vázquez’s executive order implementing a curfew/lockdown to curb the spread of the novel coronavirus disease (Covid-19) in Puerto Rico, Deputy Insurance Commissioner Rafael Cestero said Wednesday, contending that the property must sustain physical disaster-related damage to merit a payout.
Business interruption insurance replaces income lost in the event that a business cannot operate for such reasons as a fire or a natural disaster. This type of insurance, which is not sold as a separate policy but is an add-on to an insurance policy, also covers operating expenses, a move to a temporary location if necessary, payroll, taxes and loan payments.
“Such coverage is designed to cover financial losses in the operation of a business as a consequence of an event or happening declared in the policy,” Cestero specified in a press release. “In situations in which a business has been closed as part of a mandatory or voluntary closing, such property will not be considered to have suffered a physical loss that triggers the business interruption coverage, given that infectious diseases transmitted from person to person, as in the case of Covid-19, do not qualify as damage to property, be it to the structure or its content.”
The official said that business interruption coverage can only be triggered when the loss is the consequence of physical damage to a property resulting from events such as earthquakes, hurricanes and fires. Infectious or transmissible diseases are “ordinarily” excluded from such coverage, he said, adding that “hygienic measures to protect against future contamination or closure due to fear of contamination would also not qualify as direct physical loss to property.”
While traditional commercial property policies do not cover financial losses from suspension of operations due to a health crisis or pandemic, there are specialized products in the insurance market that offer coverage for the closure of operations in some circumstances, without requiring direct physical loss to the property, Cestero said. This specialized coverage is usually “very costly” and generally can only be obtained from overseas surplus line insurers, he said.
The insurance regulator said his agency cannot force commercial property insurers to pay out losses that are not stipulated in policies, an action he said would jeopardize insurers’ ability to pay other claims.
“Requiring local insurers to cover a risk they did not assume and, therefore, did not charge for in the premium, would lead us to generate another problem,” Cestero said, adding the insurers would “be left devoid of financial capacity to meet the obligations for which it did contemplate in the policy and assumed with policyholders.”
Cestero urged policyholders to consult a special Insurance Commissioner’s Office website to address concerns raised during the Covid-19 crisis: email@example.com.