The start of 2020 has brought uncertainty for tech businesses as individuals in the global health and business communities grapple with trying to understand and contain the deadly new coronavirus. Originating in Wuhan City, Hubei Province, China, the coronavirus has infected more than 28,000 people, killing at least 560. On January 31, 2020, the World Health Organization declared the 2019-nCoV virus (the formal medical designation of this new strand of coronavirus) a public health emergency. The Centers for Disease Control and Prevention, which is also closely monitoring the outbreak, reports that “[t]he potential public health threat posed by 2019-nCoV virus is high, both globally and to the United States.”

Though the human cost must be at the forefront of the global conversation, this article focuses on key business-related concerns posed by the coronavirus for the tech industry and highlights ways for tech companies impacted by coronavirus-related closures to maximize their insurance recoveries to offset any losses.

Economic Risks of the Coronavirus to the Tech Sector

In response to the coronavirus outbreak, businesses are beginning to see substantial interruptions to their operations. China, home to the second largest economy in the world, has been hit the hardest by the outbreak. It has reacted accordingly by implementing significant travel restrictions and has ordered the closing of stores, factories, and offices. According to recent estimates from Bloomberg news, China has closed entire provinces accounting for approximately 69% of China’s GDP.

The spread of the coronavirus has created significant risks of economic losses in the tech sector that, in some cases, are already being realized. For example, Apple has responded to the coronavirus by temporarily shuttering all stores and offices in China. Google has similarly temporarily closed its China offices. As airlines have begun cancelling flights to China, several tech companies have announced business-related travel restrictions to China. Tech businesses will begin to absorb additional losses as critical Chinese manufacturing facilities are shuttered and supply lines are cutoff by stoppages in shipping operations.

Insurance Coverage for Direct Business Interruption

Tech businesses with operations in China and elsewhere that have been directly impacted by the coronavirus outbreak should carefully review their business interruption insurance for potential coverage. Though typically included within a company’s commercial property policy, companies can also purchase business interruption coverage as a stand-alone product.

Business interruption coverage is designed to supplement first-party property coverage by accounting for the economic losses incurred by a business during a specific period where the business is recovering from loss or damage sustained at the business’s property or premises caused by an insured peril. For example, if a company’s facility is damaged in a natural disaster such as a hurricane or an earthquake and is forced to close for repairs, business interruption coverage will offset lost revenue and/or lost profit while the property is being restored or repaired.

Although a virus outbreak may not “damage” property in the traditional sense, courts have found that similar instances that render a property unfit for its normal use trigger coverage. Such instances are akin to coverage for business interruption caused by environmental contamination. To determine whether a shuttered factory, store, or office in China or elsewhere due to the coronavirus outbreak has resulted in a covered business interruption, policyholders must review their insurance policies carefully, including the wording of exclusions.

Additionally, many property policies provide coverage for lost income or profits where a civil or military authority limits, restricts, or prohibits access to a business’s property due to an insured peril. Here, businesses who have been ordered by, for example, Chinese authorities to close their offices or factories may be able to obtain such coverage. Typically, insurers providing civil or military authority coverage will require the business to show that the actual or alleged presence of the coronavirus in their building(s) constitutes “physical loss or damage” as well as that such “loss or damage” was the sole reason for the civil or military order. Insurers may also require the business to show that the order made it impossible (not just more difficult) for anyone to access the property.

Insurance Coverage for Supply Chain-Related Loss

Tech businesses that rely on Chinese manufacturing, shipping, and office capacity to deliver products, components, services, customers, or other key elements of their business that have been impacted by the coronavirus-related closures have several potential routes to insurance coverage.

First, many commercial property policies contain contingent business interruption coverage, which covers economic losses arising out of the suspension of business operations by a supplier. This form of coverage generally only responds if the supplier’s suspension of operations was caused by a type of harm that would be covered if suffered by the business itself. In other words, contingent business interruption coverage typically applies only to the same types of losses covered if faced directly by the policyholder’s business.

Second, commercial property policies often provide coverage for contingent losses caused by shutdowns of a supplier ordered by a civil or military authority. As with direct civil or military authority coverage, insurers offering this form of coverage will likely require the insured to prove that the order was directly related to a “physical loss or damage” – i.e., contamination of a property by the coronavirus – and that the order made it impossible (not just difficult) for the supplier to enter its property.

Finally, due to the rise in hurricane and other natural-disaster‑type losses in recent years, insurers have begun offering standalone supply‑chain insurance products. If your business has a substantial international supply chain and commercial property coverage that is overly expensive or difficult to negotiate, a standalone supply‑chain product may be right for your business. The purchase of such a product should be negotiated to specifically provide coverage for communicable diseases as a form of “contamination” or “property damage.”

Insurance Coverage for Liability Claims

In the event that one of your employees falls ill from the coronavirus and brings a bodily injury claim against the company for exposing the employee to the virus, it is important to review your business’s workers’ compensation insurance program to determine whether such a claim is covered. Such coverage is likely to turn on whether the employee can show that he or she contracted the disease specifically in the workplace.

Businesses should also review their commercial general liability coverage for possible coverage for a coronavirus-related “bodily injury” claim. Commercial general liability policies typically exclude coverage for “pollutants” and/or “bacteria” and define those terms broadly. It is important to closely evaluate these types of exclusions and – if necessary – consult with counsel or a medical expert to assist in determining the scope of the exclusion(s).