Businesses are facing unprecedented challenges as a result of COVID-19 and the measures that have been implemented as a result.
The focus for possible insurance recovery (leaving aside bespoke policies for event cancellation and similar) is business interruption cover. There have been a number of press reports indicating that business interruption policies are unlikely to cover the current circumstances and criticism has been made of the insurance industry as a result.
However, while cover under some standard policy wordings may not be available, there are products in the market which may provide a route to recovery and it is important that companies check their policies carefully and, if appropriate, seek legal advice before concluding whether or not there is cover available.
Here we provide our quick guide to business interruption insurance and the issues companies should be considering.
- Business interruption insurance in its standard form will cover losses arising from physical damage to property. It has been suggested that contamination by a virus could constitute physical damage. That will be the subject of argument but, in many cases, will not be the cause of the losses in question in any event. Therefore, obtaining cover under the standard business interruption policy will be challenging.
- However, some common extensions to cover may be of assistance (but it should be noted that there is sometimes a lower sub-limit of indemnity under these extensions). Two examples are:
- Notifiable diseases. Typically this type of extension comes in two forms:
- Those that contain a list of the actual diseases that are covered. Although the current coronavirus was not known about until November 2019, there may be cover for mutant variations of existing diseases, which may provide an argument for insureds if it can be demonstrated the current virus is a mutation of a previous one.
- Those that cover diseases that have been made notifiable by a local authority. For example, COVID-19 was declared a notifiable disease in England on 5 March 2020 (see The Health Protection (Notification) (Amendment) Regulations 2020 (SI 2020/237)), which means any losses after that point may be covered.
- Denial of access. The cover could be limited to a denial of access as a result of property damage, which may not assist where the premises are not contaminated but closed because of government guidelines. There are, however, wider forms of wording in the market.
- In short, while there are challenges on many of the standard formulations of cover, companies may have purchased wider cover and it is critical to check the policy wording carefully.
- There is also talk in certain jurisdictions of implementing retrospective legislation that requires insurers to pay out. It would be surprising if this happened as the insurance industry could suffer major insolvencies without state support. Any state support is therefore more likely to come direct to businesses in other forms rather than in requiring insurers to pay-out where the policy does not respond.
- Finally, to the extent businesses do not have cover but believe they should have, the advice given by insurance brokers should also be considered. That said, scope for criticism of brokers for failing to advise on procuring extended cover would be very fact dependent and will face a number of evidential hurdles, including whether or not the insurance that is now claimed not to have been recommended was available and would have been purchased at the time.
