Business owners know this all too well: having one general liability policy simply isn’t enough to protect them from significant losses if they are sued, especially in times of crisis and ever-growing litigation expenses. To fill any gaps in protection against the financial damage of lawsuits, many businesses opt to purchase a commercial umbrella policy.

Insurers and business owners alike could not have possibly planned for a trifecta of a hard market, supply chain issues obstructing U.S. business operations, and the ongoing COVID-19 pandemic. For businesses with liability and umbrella policies, the result of this perfect storm can be an inability to cover financial losses from a COVID-19–related lawsuit, even after a claim is filed.

As we navigate yet another nationwide surge in COVID-19 cases, it’s more crucial than ever to understand how these coverage exclusions came into play during the pandemic so you can be better prepared for your next policy renewal.

So, what’s going on?

Unfortunately, most businesses did not see their general liability and umbrella policies kick into gear due to the pandemic. Some policies already contained exclusions for claims related to widescale contagion-related emergencies. Other insurers quickly added policy exclusions in early spring barring a pandemic from that same coverage. Specialty lending company altLINE sees the impact of these policy exclusions every day when assisting small business owners with near-term funding to cover expenses insurance can’t or won’t.

“The rationale behind these exclusions [is that] pandemics cannot literally translate into physical damage that results in a loss of profits,” explains altLINE Senior Vice President Jim Pendergast. “Can pandemics trigger panic and civil unrest, which in turn results in the destruction of physical property? Absolutely. But that’s not the game of connect-the-dots most courts have made these past months.”

This is especially problematic for businesses in essential sectors that have resumed operations during the pandemic, leaving room for possible COVID-19 exposure and subsequent litigation by disgruntled customers or employees. With lawsuits of this nature typically settling for millions of dollars, one rejected general liability or umbrella claim can cripple a business indefinitely.

Your first step forward: Start the renewal process ASAP

Your insurance broker should be your partner in ensuring your umbrella coverage conditions and exclusions are tailored specifically to your business’s needs. They also should help you obtain more competitive pricing over your current carrier’s cost increase trends.

Start the conversation as early as possible to buy your business more time to prepare for loss control inspections when your policy nears renewal. These inspections directly impact your general liability and umbrella premiums since they provide carriers with valuable insights on your company’s risk profile. You can set yourself up for significant price reductions if you are willing to implement safety and risk control programs and recommendations.

Looking for additional guidance on umbrella policy exclusions? Contact a Marsh McLennan Agency advisor today.

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