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Captive Insurance Covid-19 Claims

We have received a number of calls asking whether the economic disruption caused by the Covid-19 pandemic can be covered by a captive insurance company and how a captive should respond to the crisis.

What is a coverage trigger?

Insurance is the transfer of risk from a person or company, called the insured, to an insurance company in exchange for the payment of a premium.

The risks covered and the conditions of coverage are documented in a written insurance policy.

The policy details the incidents, events, or circumstances that trigger coverage under the policy. The triggers of coverage under a policy depend on the type of policy and the language of the policy. The type of policy and the language of the policy are based on the underwriting/actuarial report obtained by the insured company.

What happens after coverage is triggered?

It is important to differentiate between triggers of coverage and conditions of coverage.

Conditions of coverage are the steps that an insured must take after a trigger of coverage occurs before the insurance company will accept liability under the policy.

Conditions of coverage include notifying the insurance company that a claim has occurred, with a detailed description of the claim, and submitting proof of loss.

What types of policies might cover COVID-19?

Some of the policies that may provide coverage for losses triggered by the Covid-19 pandemic are:

  • Business Interruption
  • Contingent Business Interruption
  • Supply Chain Interruption
  • Communicable Disease Liability
  • Regulatory Change
  • Political Risks

How do you determine if COVID-19 is covered?

Whether or not a policy provides coverage depends upon the language of the policy.

Each policy has a unique definition of Insured Occurrence and Insured Loss.  The definition of Insured Occurrence determines whether a certain event, such as the Covid-19 pandemic, is covered under the policy.  The definition of Insured Loss determines the types of economic loss covered under the policy.

The first question to ask is whether the economic disruption caused by the Covid-19 pandemic falls within the definition of Insured Occurrence contained in the policy.

If it does, the next question is whether the losses suffered by the insured fall within the definition of Insured Loss.  Only if the answer to both questions is yes will the policy provide coverage.

What are the steps if you think you have a claim?

If you desire to make a claim under a policy as a result of the Covid-19 pandemic, it is important for you to document any potential claim.

You need to identify the nature of the disruption to your business and when and why it occurred.  In addition, you need to document your losses.

We understand that losses may be incurred over a period of time.  However, it is important that you provide notice of a claim to your captive as soon as you are aware of the claim, even if you do not know the exact amount of loss.

Every claim submitted will be investigated and adjusted.  This process can be made much easier by gathering information, both loss specific and financial when an event occurs and providing it in a timely manner.