Raise your hand if you ever thought that churches across the country would be shuttered and pastors everywhere would be relying solely on live-streaming their services to connect with members…
This has a lot of churches and other non-profit organizations questioning how these forced (or otherwise strongly encouraged) shutdowns will affect their tithes, donations and other revenue that is dependent on donors. After all, if the doors aren’t open, will giving be forgotten? Second, if the church had to shut its doors through no fault of its own, is the loss of income covered under the insurance policy, like a closure due to a fire or hurricane? To answer this question, let’s take a look at Business Income Insurance – what’s it’s intended for, what it covers and how to best estimate how much is needed.
The Intent of Business Income Insurance
Business Interruption (BI) Insurance, also known as Business Income Insurance, is a type of insurance that covers a business for the reduction in revenue after they suffer a loss. The intent is to carry the business through the time of restoration or rebuilding after a disaster. After a major loss, rebuilding can take several months, and this is after waiting on things like adjuster investigation and permitting.
The key to triggering coverage for a business income loss can come from a couple of places (1) physical damage to a covered property that forces a closure or (2) a civil authority forces a location or whole area to close. The caveat to a civil authority closure is that there still needs to be physical damage to property, maybe not even owned by the church, that makes the closure necessary. For example, after a major hurricane, many streets are impassable and power lines are down which forces road closures. There may not be anything wrong with your insured building, but people just aren’t allowed to get to you. Whether it’s damage to your building or surrounding property that forces a shutdown, property damage by a covered item is a requirement.
This leads us to our current pandemic situation. Will insurance companies pay for lost revenue due to forced closures? The intent and language of the insurance policies say no. This doesn’t mean that you can’t file a claim, or that the policies won’t be challenged in the courtroom, but business income insurance policies are not intended to cover for quarantine due to a global pandemic.
What our current pandemic situation has taught us, however, is how important the coverage is if we were to find ourselves out of business due to a physical loss, like a hurricane. Business Income insurance can include things like payment of ordinary payroll for all staff members, payment of extra expenses (for things like renting offsite space for services or preschool education), or payment of other ongoing expenses like mortgages or leases.
Business Income Worksheets Calculate the Need
Determining the appropriate amount of BI for a church is unique to its needs and exposures. The need will change if the following are present: tuition-based preschool, thrift stores, fee-based counseling services, summer camps, concerts, or other revenue generating events. Fortunately, similarities with other churches have allowed insurance carriers to create a reliable “benchmark” for churches and religious institutions. The benchmark BI limit for churches is 80% of total revenue (assuming 12-month value and including 100% payroll benefit).
Businesses are just now starting to feel the effects of the coronavirus, COVID-19. Surely, these effects locally and on the economy at large will be felt for years to come. Churches and non-profits are having services and events cancelled or moved to livestream, and there is a slow-down of all other in-person gatherings. How this will impact the administrative and financial health, it’s way too early to tell. Will tithes and donations drop off because the building isn’t open for services? Will members curtail their giving because they’re spending in other areas or perhaps their financial livelihood has been affected? If donations are significantly reduced as an effect of the coronavirus, is there insurance coverage for that? If staff, members or guests contract the virus at our facilities is our organization liable?
Loss of Revenue Loss of revenue or “Business Income (BI)” is a coverage that typically falls under the Commercial Property Insurance policy. However, for a claim to be paid, we must carefully consult the policy language. All property policies vary in coverage, limits, triggers and exclusions, so organizations should review their specific policy before filing a claim or expecting a BI loss to be paid. That being said, the majority of all commercial property policies have both specific exclusions and coverage limitations on BI claims from viruses and “civil authority” actions.
Under most policies, an exclusion of loss due to virus or bacteria is included on the policy. The most common exclusion, which many insurance carriers apply, comes from the widely used Insurance Services Office (ISO) form CP 01 40, and it specifically states:
“there is no coverage under such insurance for loss or damage caused by or resulting from virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease. The exclusion in this endorsement applies to all coverages provided by your Commercial Property insurance, including (if any) property damage and business income coverages.”
You may be thinking, however, the virus doesn’t cause any damage, it’s the state or federal government recommending, or in some cases requiring, a quarantine that’s affecting the income stream. That too is contemplated in the insurance policy. While many property forms can vary, we’ll look at the “Civil Authority” coverage in the industry standard ISO form, CP 00 30. This forms states:
“We will pay for the actual loss of business income you sustain and necessary extra expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any covered cause of loss.”
Most BI coverage in the commercial property cause of loss form will include “Civil Authority” as a covered cause of loss, but while it is providing coverage, it is simultaneously limiting the coverage to a specific type of event. As we can see, the coverage requires a “direct physical loss or damage to property” and requires a “covered cause of loss.” For example, after Hurricane Irma, many roads were impassable and the local authorities restricted traffic. When businesses lost income because the authorities restricted traffic and affectively quarantined an area, there was insurance coverage. The coverage was triggered by a physical, wind damage loss to trees or power lines, even though it’s wasn’t on our property. In the case of coronavirus, the loss of income isn’t due to physical damage and isn’t due to a covered loss (because viruses are excluded).
Workers’ Compensation claims for COVID-19 It is possible that some organizations will have employees incur medical expenses or lost wages due to a COVID-19 illness. Any claim for workers compensation due to the illness would be investigated and evaluated based on the circumstances of each claim, but keep in mind that the workers’ compensation system is not the appropriate starting point for COVID-19 concerns, testing and treatment. Claims involving communicable disease are typically not considered compensable for employees who are at no greater risk than the general public.
Summary If the coronavirus, COVID-19 causes a loss of income on the Commercial Property Policy or a claim on the Workers Compensation policy, it is highly unlikely either would be covered.
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There are an estimated 200,000 emergency room-treated injuries annually, sustained from the use of playground equipment. Studies from the National Program for Playground Safety (NPPS), have shown that 73% of playground related injuries annually come from public playgrounds. Churches and schools that maintain playground equipment for their child and students provide a valuable form or recreation, but also open themselves to liability from accidents.
After checking out the flashy infographic from the Children’s Safety Network, we should be asking two questions (1) What can we do to make playgrounds safer? and (2) Do we have coverage for an injury or lawsuit?
What do we do about it?
Avoid these problems:
Age Appropriate Equipment – Playgrounds should be built for two age groups, 2-5 and 6-12. A young child, age 4, playing on equipment that was designed for a 10-year-old will find the steps and railings too far apart and will not possess the strength needed to use the equipment appropriately. The NPPS found that 64% of all public playgrounds did not have any safety signs posted to inform users of safety concerns and age appropriateness of equipment. Posting a sign may not prevent an accident or injury, but it may mitigate the damages awarded in a lawsuit.Here is an example of age appropriate equipment:
Areas to crawl
Ramps with handles
Cooperative pieces like tire swings
Low tables for sand and water
Flexible spring rockers
Open space to run
Open area to manipulate materials
Semi-enclosures for fantasy play
Surface Material – Falls constitute the most common cause of injury at all playgrounds. These falls will come in various forms, including off, onto or into equipment. Regardless of the height of the fall, the surface material will have a lot to do with the severity of the injury. The chosen surface material should accommodate the potential fall hazard of the equipment. Wood chips, sand, pea gravel, shredded tires and rubber mats cushion falls well, but they require different amounts of material based on the height of equipment. For example, 6 in. of shredded/recycled rubber are required to protect falls of up to 10 ft, however 9-12 in. of wood chips are required to protect falls from the same height. For a full chart of appropriate surface materials and depths, download this excellent 8-page Risk Management summary on Playground Safety from Philadelphia Insurance.
Maintenance – 23% of all playground injuries are equipment-related. Injuries can come from the smallest wear and tear and from the most open and obvious hazard. If you own and use a playground, a regular, DAILY maintenance plan should be in place. Not only should the equipment be inspected for things like splinters and sharp corners, but also water damage and paint peeling.The U.S. Consumer Product Safety Commission has a great 2-page checklist for playground maintenance, I recommend you download it for free. If you’re a glutton for punishment and want their whole 57-page Public Playground Safety Handbook, you can download that for free as well.
Do we have coverage for an injury or lawsuit?
General liability insurance policies do pay medical expenses, damages and provide defense for lawsuits from accidents on playgrounds. To ensure your general liability policy provides this protection, you’d have to make sure there are no exclusions for this type of equipment. Generally, if you have a playground on the premises, you will be paying a separate, line-item premium charge for each playground and there will be no exclusions. However, if the insurance company doesn’t know about or charge for playground exposure, they may include an exclusion on the policy. If there is an exclusion on the policy for playgrounds, there would be no coverage or defense in the event of an injury or lawsuit. It is critical that you work with an insurance advisor that has inspected the premises and has structured the General Liability policy to include playground exposure.