As the Zika virus continues its rapid spread and amid travel warnings, including one advising pregnant women not to travel to popular tourist destination Miami Beach as well as advice to postpone non-essential travel to Florida’s Miami-Dade County, questions on business interruption insurance are bound to arise.
So this is perhaps a good time to review what a business interruption insurance policy covers.
The Insurance Information Institute (I.I.I.) reminds us that business interruption coverage, sometimes known as business income insurance, covers financial losses resulting from a business’s inability to operate because of property damage due to an insured event.
Generally, business interruption insurance will cover:
•Revenue lost due to the closure.
•Fixed expenses, such as rent and utility costs.
•Expenses of operating from a temporary location.
But there must be direct physical damage to the property from a covered event for a business to be reimbursed under the policy.
A good example of a covered event would be a fire or windstorm that might damage property thereby causing a business to lose income.
A mosquito-borne infectious disease does not appear to meet the threshold for property damage under a traditional business interruption policy therefore.
In addition, while businesses may lose income due to fewer customers and tourists visiting an area because of fear over the Zika outbreak and in response to travel warnings, legal experts say there are several reasons why traditional business interruption insurance policies are unlikely to respond.
Some businesses may have an extension to their property insurance policy that could provide some business interruption coverage for non-damage scenarios (i.e. where there is no physical damage to an insured’s property), but limitations and exceptions to this coverage may apply.
Recently, the World Economic Forum (WEF) observed that beyond direct health impacts, infectious diseases can impose significant additional economic costs through a response called “aversion behavior”.
Aversion behavior includes actions taken by individuals to avoid any exposure to the illness, as well as actions taken by investors as they anticipate those individual decisions.
Even individuals with no direct contact with the disease will take a range of actions to avoid any risk of contracting the disease, the WEF says:
“As shown by the recent Ebola outbreak, these reactions can be rational or they can dramatically overestimate risk, leading to a wide variety of factors that can negatively impact the economy, from stress to labour and supply scarcity, financial market instability, and price increases.”
The economic impact of aversion behavior may be significantly greater than the direct economic impact from sickness and death, the WEF said.
For example in 2015 the World Bank estimated a potential loss in GDP of more than US$1.6 billion in Guinea, Liberia, and Sierra Leone as a result of the Ebola epidemic, and more than US$500 million across the rest of the continent. This was based on an erosion in consumer and investor confidence and disruptions to travel and cross-border trade.
Check out I.I.I. facts and statistics on mortality risk here.
Zika virus resources from the Centers for Disease Control and Prevention (CDC) are available online.
According to the CDC, as of August 17, there were 2,260 cases of Zika in the U.S.
Below is the CDC map of Zika cases reported in the U.S.: