Is the coronavirus considered an act of God?
Insurance companies once commonly used “act of God” to describe natural disasters beyond human control. The term is rarely found in insurance policies today, but it’s still common lingo.
And whether the coronavirus (COVID-19) is considered an act of God is top of mind for small business owners everywhere.
The COVID-19 pandemic certainly counts as a global disaster, but whether it qualifies as an act of God is debatable.
Most business insurance policies specifically exclude communicable diseases like COVID-19 and don’t consider them to be an act of God. If that’s the case with your policies, financial losses caused by the current disease outbreak probably won’t be covered (unless you have a communicable disease rider).
But not all policies are built that clearly. The first step is seeing what typically counts as an act of God.
What is considered an act of God in insurance?
An “act of God” generally describes an event that can’t be predicted or prevented with reasonable care. In the insurance industry, acts of God are outside of human control. They include natural disasters such as:
- hurricanes
- earthquakes
- tornadoes
- lightning strikes
- storms
- floods
Since “act of God” is often unclear, most insurance providers no longer include that wording in policies. To avoid confusion, many insurers’ policies simply list specific natural disasters that are covered or excluded.
Insurers and states vary on whether pandemics are considered acts of God. If your policy has this language, check with your agent to see if you’re covered for financial losses related to COVID-19.
Do any insurance options cover an act of God?
Commercial property insurance policies may exclude damages from acts of God like hurricanes and earthquakes. But you do have options when starting these policies.
Most commercial property insurance providers let you choose between:
- Open perils insurance policies, which cover all events that are not specifically excluded in writing.
- Named perils policies, which are limited to the events specifically listed.
Insurance providers that offer open perils policies usually charge higher premiums because the coverage provides more comprehensive protection. But they’re your best bet for covering the widest range of acts of God.
If you need protection from specific natural disasters, consider a separate policy for coverage or add a rider to your commercial property or business’s owner’s insurance.
How will COVID-19 and insurance policy limitations affect my business?
Faced with reduced revenue and forced closures, many small business owners are wondering if their insurance coverage can help them stay afloat.
Here’s how COVID-19 is generally covered/excluded under common business insurance policies:
- Business interruption insurance typically doesn’t cover disease-related disruptions. Most business interruption coverage reimburses you for lost revenue due to other unexpected events. This is a rider you can add to a business owner’s policy.
- Commercial property insurance usually doesn’t protect against losses caused by viruses and bacteria. This insurance is intended to cover business buildings and property from loss and damage. These policies are also unlikely to pay for the costs of deep cleaning an office space.
- General liability insurance may help pay for lawsuit costs and damages if your business is accused of exposing customers, clients, or employees to the coronavirus.
- Workers' Compensation may cover a communicable disease if the infection can be traced to the infected employee's place of business.
Coronavirus and insurance coverage varies by carrier. Aside from some workers' comp claims, communicable diseases like COVID-19 are generally excluded from coverage and rarely considered an act of God.
That doesn’t mean you can’t take steps to protect your business from financial losses.
Should my business be concerned about lawsuits caused by acts of God and pandemics?
Although it’s unlikely someone would sue a business over a disaster itself, COVID-19 may trigger legal action.
COVID-19 could result in professional negligence lawsuits due to project delays or cancellations.
You can protect your business from the financial costs of these lawsuits by addressing these scenarios in your contracts.
Include force majeure clauses in contracts
“Force majeure” is a contractual clause used in business. It relieves the parties of their obligations under the contract in the case of uncontrollable events.
Like acts of God, the definition of force majeure can vary. Generally, a force majeure provision protects a business from a professional liability lawsuit if a catastrophic event makes completing work or meeting deadlines impossible.
Force majeure clauses typically include protection from acts of God such as natural disasters. But they may also include other events such as armed conflicts, civil disturbances, and pandemics.
The party with the most money at stake typically has more leverage when negotiating force majeure clauses. If your business is about to sign a big contract, don’t be surprised if the client requests a narrower definition of force majeure that excludes events like disease outbreaks.
To help guard against the risks of an unforeseen event like COVID-19, include a force majeure provision in your client contracts. These provisions should extend force majeure to both traditional acts of God and pandemics.
Disease outbreaks, disasters, and other unexpected events can all derail business as usual. Plan ahead by talking to an Insureon expert to ensure you have the coverage to help you weather the next crisis.
Complete Insureon’s easy online application today to compare quotes for business insurance from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.
