Does insurance cover pandemics? NJ businesses are finding out

Businesses that are still open in New Jersey amid the coronavirus crisis are not only seeing their income drop profusely, but the business-interruption insurance they may have purchased is causing some problems, too.

Jay Feinman, distinguished professor of law at Rutgers Law School, said one problem is that many of these business-interruption policies contain a specific exclusion for interruption to their business because of a virus or bacterial contamination. Also, business-interruption policies usually require property damage — fire, for example — as the basis for interruption.

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But with the pandemic, some cases are being filed to assert that the coronavirus infection actually causes property damage because the property has to be cleaned and sanitized. That cleaning is what's keeping customers away, so that is going to be issue going forward, said Feinman.

He said insurance companies have dealt with the SARS epidemic in the past. That's why they created the exclusion for viral infections. But nobody has ever dealt with anything like this on such a scale where so many businesses have been affected all at once.

Insurance companies have said if they have to pay all of these claims retroactively, it would have a huge effect on their capital, said Feinman. One of the things that's being proposed is federal legislation, something similar to the 9/11 Victims Compensation Fund, to support this through public dollars as well as through private insurance money.

He said businesses that have interruption coverage should file the claim because it depends on the specifics of their policy and how a court would interpret them in case of litigation.

Some people in the insurance industry propose they need a new system going forward. Feinman said federal law covers insurance in the case of large-scale incidents of terrorism, which private companies otherwise wouldn't insure. He said maybe that's what is now needed for pandemics.

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