Coronavirus: Business Interruption Insurance FAQs
In the media and through a number of different channels (including on many websites), the message being sent out to businesses has been that business interruption insurance will not provide cover for losses in relation to COVID-19. This is particularly concerning for business in the hospitality and leisure sectors, with these businesses being amongst the hardest hit by the pandemic and many of whom are now subject to enforced closure.
For example, on 4 March 2020, the Association of British Insurers released a statement that said:
Standard business insurance policies are designed and priced to cover standard risks and are therefore unlikely to provide cover for the effects of global pandemics like Covid-19
And on 17 March 2020, the headline of this BBC article read:
Coronavirus: No insurance cover for most virus-hit businesses
However, we do not consider that it is this simple, and strongly encourage businesses to still check their insurance position.
What You Should Be Doing?
1. Check your insurance policies
Although it is correct that it will be the minority of insurance policies that will provide cover in the present circumstances, you should not assume your business is not covered.
In particular, check the terms of your property damage insurance as it is possible that interruption to the business may be covered as an extension to this policy.
The insurance could cover loss of profits or income in the event the business is interrupted or adversely affected due to reasons that are beyond your control. Although some policies require the interruption to be caused by physical damage that is insured under the policy (for example, by a flood), this is not always the case.
2. Contact your broker
If you purchased your insurance through a broker, the broker should be able to inform you whether the policy provides you with cover in the current circumstances. Your broker should also be able to contact your insurer on your behalf to make and progress any claim.
3. What should you be looking for in the policy?
Some policies contain cover for interruptions caused by restrictions on access to and/or use of business premises without the need for the premises to have suffered damage.
You should check whether your policy provides cover if access to your business premises is restricted as a consequence of public authority order, advice or similar.
You should also check whether your policy includes cover for restrictions in use of your premises as a consequence of ‘infectious disease’ (sometimes referred to as ‘notifiable disease’) cover.
It will often be a requirement under the policy that there has been an incidence of the disease at your premises. We have, however, recently seen policies where this is not the case and cover is wider, particularly where cover is provided for restriction of use of business premises as a result of public authority advice in response to infectious disease.
Where your policy refers to ‘notifiable disease’, cover will only be available in respect of diseases that are notifiable under the Health Protection (Notification) Regulations 2010 (the “Regulations”). On 5 March 2020, the government passed an emergency statutory instrument that amended the Regulations to add COVID-19 to the list of notifiable diseases. However, some policies we have seen require the insurer’s prior written consent before accepting new diseases as notifiable for purposes of the policy.
Finally, if you do believe you have the benefit of business interruption cover in the present circumstances, you should check whether there is any ‘waiting period’ in the policy before you can claim cover (for example, a certain number of days your business must be closed before the business interruption cover kicks in).
4. What if I decide to close my business?
If you decide to act on the government’s advice and voluntarily put in place a temporary closure of your business before expressly required to do so by the government, even though this may be a sensible precaution, your business interruption insurance policy may not respond.
5. How should I be minimising my losses?
It is a requirement of most policies that you should act to ‘mitigate’ or minimise any losses that you may suffer. The normal way this requirement is satisfied is by trading from alternative premises. Of course, these are not ‘normal’ times and trading from alternative premises is not a viable option.
Where possible, insurers will likely expect policyholders to be taking reasonable steps to continue trading. Such steps could include implementing remote working, attempting to carry on fulfilling order from suppliers or carry on providing a service and attempting to reduce any costs to the business. It would not require a policyholder to pivot to an entirely new business model or repurpose their premises.
Some insurers may attempt to argue that policyholders have to enforce any existing contracts by, for instance, by requiring customers to continue to pay membership fees or other recurring fees even during the period of closure, to mitigate any losses to the business. This will need to be looked at carefully.
The Financial Conduct Authority will expect insurers to treat customers fairly, and has released guidance on its expectations of insurers in relation to COVID-19, which states:
We would not expect to see [the customer’s] ability to claim impacted by circumstances over which they have little control
6. If I need any advice, who should I contact?
If you need any advice on your insurance policies, please contact Adam Edwards or Daniel Meyer in our Financial Services Regulatory team.
If you would like to talk through the consequences for your business, call our Coronavirus Helpline on 0845 404 4111 for a free consultation (on appropriate commercial enquiries only) or e-mail us and one of our Helpline team will get in touch.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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