Susan Hopcraft, a partner in the Dispute Resolution team at Wright Hassall, makes an expert contributiopn to the Coronavirus and business interruption insurance debate.
Imposed to reduce the risk of spreading Coronavirus, the Government lockdown has had a detrimental effect on businesses, with many losing their entire revenue overnight.
Knowing what might be around the corner, companies have added businesses interruption (BI) cover to their already expensive insurance, safe in the knowledge that any loss of earnings through no fault of their own would be covered by the policy.
However, many claims have been refused, which has led to calls for Government intervention, as even those businesses with cover for forced business closure have had claims dismissed.
Acting together and starting class actions may be one answer, but businesses can do more to push their claims and the Government’s financial regulator (the FCA) is now taking an active interest. Some policies have extensions that might apply to coronavirus losses, for which additional premiums will have been paid.
If the insurers have not worded these clauses to exclude pandemics, they are likely to find themselves liable to pay out. It’s a challenge that businesses could do without when the future for many is so uncertain.
What are BI policies?
Standard business interruption covers a business for loss of income during periods when they cannot carry out business as usual due to physical damage: typically damage to the premises caused by a storm, fire or flooding.
The insurance might compensate the business for any increased running costs and/or shortfall in profits for a set period and financial limit.
Some policies have extensions that might apply to Coronavirus losses, for which additional premium will have been paid. There are two main likely clauses:
• Business Interruption
Most extensions cover specific diseases, listed in the cover. These are diseases that are well known and understood. Covid-19 will not be named though, and this is likely to lead insurers to deny claims. Businesses will feel aggrieved by that when they bought cover for this type of circumstance. The argument will be that the clause was intended to cover disease closure and the clause could not have named a disease that did not exist.
Some disease extensions are more general and do not specify certain diseases. In these cases, business interruption cover for Covid-19 is more likely to apply. Usually Covid-19 must have been present at the premises or within a short radius. This is because business interruption is supposed to cover the short period while premises are shut down for a deep clean.
Insurers will not have been expecting to pay for a long term shut down due to a global pandemic, but each clause is different, and you should check your wording.
• Business Interruption
(non-damage denial of access)
Another relevant extension is cover for losses as a result of people not being able to access the premises due to specific circumstances such as the police cordoning off an area due to an event such as terrorism, a fire, or the risk of a collapsing building. The clause might cover inability to trade due to a government restriction, which is what has happened now with schools, then bars/restaurants directed by the government to close prior to a full lockdown. These clauses might cover loss, again depending on the wording.
Another issue arising out of businesses being temporarily closed is the need to let your insurer know if the insured premises are unoccupied.
There may be a clause in your property insurance that requires the premises to be occupied. The Association of British Insurers (ABI) has suggested that insurers will be more flexible over the requirements around these types of clause under current circumstances, but you should consult your broker/insurer if you are in any doubt or it may lead to an insurance dispute.
The premises will still need to be insured against risks such as fire and theft/vandalism and all sensible risk management precautions need to be taken and policy conditions complied with.
The current situation
For some businesses, the business interruption extension might be worded to enable recovery of losses due to coronavirus closure. For others, particularly where Covid-19 is not included in a specific list, cover may well be denied.
Insurers will say they do not cover pandemics and do not charge premiums commensurate with that exposure. They might also say that it is for government to bail out businesses, for example, by the furlough scheme because this pandemic is so widespread and unexpected that it falls outside what private insurance ought, as a matter of policy, to cover.
Insureds will say that they were paying extra premium to extend cover to deal with precisely this sort of risk. Just because the disease was not known, that should not exclude them from cover. Equally the government may want to try and claw back some of the employee costs it is otherwise covering via the insurance industry.
The Government has asked the insurance industry certain questions. Mel Stride, the Chair of the Treasury Select Committee, wrote to the ABI on 25th March asking for data and information on the industry’s response to coronavirus.
The ABI replied and, swiftly after that, the FCA announced that it intends to bring action against certain insurers for a decision on whether Covid-19 losses are covered. It is hoped that this will result in a binding decision on which all insureds under certain polices can rely, without each needing to bring a legal claim individually and pay the legal costs for that.
This could be very beneficial for policyholders, with decisions possibly as early as Q3 2020.
Protecting your business
The decision to deny pay-outs has angered businesses, especially as many believe they have taken all the necessary precautions needed to protect themselves from this kind of scenario.
With the financial security of many hanging in the balance, receiving the money for a claim could be the difference between surviving the crisis or succumbing to its pressures.
If your business closes or is otherwise disrupted by Coronavirus, you might have business interruption insurance to make up the deficit.
Your insurance broker can give you a preliminary view but, if you have tried that and the insurer has declined your claim, then contact a team of experienced lawyers for advice.
T: 01926 732512
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