COVID-19: Are your losses covered by insurance?

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In his recent newspaper column the businessman and restauranteur, Luke Johnson, described the insurance industry’s response to the Coronovirus as “deserting the battlefield at the first whiff of cordite“. He calls this “reprehensible behaviour” by insurers who, he says, are “denying any liability under business interruption policies”.

It is a difficult and emotive time for businesses, especially those in the hospitality and entertainment sector, but it is fair to say that commercial policies of insurance, including those labelled as covering “business interruption” risks, cover defined risks which may not in every case compensate businesses for all or any of the losses they suffer. Construing the bargain that the Insurer has made with the policyholder requires an analysis of the detail of the wording in each case. Commercial insurance policies are rarely the same; there are variations in wording and coverage which make it difficult to generalise.

In this article we consider two types of insurance policies which businesses who have them should review when assessing the availability of financial relief obtainable from their insurers.

Business Interruption Insurance (BI)

Traditionally, BI insurance has been a secondary coverage available on property insurance, providing cover for loss of profits and increased cost of working, which is triggered when there has been property damage, for example a fire at premises which causes property damage and a business to cease trading. This type of BI cover is not likely to be relevant in the current Covid-19 climate, so coverage for BI loss will depend on whether there are extensions of cover provided for in the policy wording.

In some cases, the policy may provide standalone BI cover (i.e. not dependant on a property damage claim) as an extension to the normal coverage. In other cases there may be an express extension of cover for Infectious Diseases or Specified Diseases (as defined) or for “Notifiable Diseases”. Equally, where some policies provide extensions for coverage other policies may contain express exclusions from cover for named diseases. Given that Covid-19 is a new infectious disease, identified in December 2019, it will not be specifically referenced in these clauses but there may be broad wording which captures variations of coronavirus.

If available coverage for BI losses is established from the wording then there may be issues over causation and measurement of those losses. Prevention of Access triggers in policies require an analysis of the facts surrounding any order made by a public body or government which has the effect of forcing a business to close its doors to its staff and /or customers. The early announcements from the government advising against going to restaurants, pubs and clubs sent mixed messages to businesses looking to rely on insurance. However, where there is now clarity following the Government’s order to close those establishments and the more recent order for a general lockdown of the UK, policies with Prevention of Access extensions of cover may be triggered. The extent to which business losses are then recoverable will depend on whether the particular event caused the loss, and how such loss is calculated by reference to the policy terms.

Contingency/Event Cancellation Insurance

Event cancellation policies (also referred to as contingency policies) are commonly found in industries reliant on the generation of income through events. This can range from local music concerts to national and international events. We have already seen the postponement of the national and international sporting calendar, including now the Tokyo Olympics, and at a more local level the cancellation of music festivals and other annual public events..

Event managers, organisers, suppliers and performers (not ticketing attendees) should look to their insurance and review the terms of any specific event cancellation policies that they may have in place. Coverage is ordinarily for losses caused directly by the “necessary” cancellation or postponement of the event insured following defined perils, although these are generally drafted broadly.

Exclusions can often apply in standard wordings including a cancellation caused by a communicable disease but it is possible that, where wordings vary, they may not apply in the current situation, or that policies may contain specific extensions of cover for loss caused by communicable disease.

See also: Covid-19 and Sporting Events – What Does the Law Say about Dealing with Disappointed Fans?

Other Insurances

Other insurances purchased by a business may also bear the risk of Covid-19 disruption including trade credit insurance and political risks insurance. These are specialist policies which may have relevance depending on the type of business or investment transacted, and the particular situation giving rise to losses. Directors and Officers liability insurance may also become relevant as businesses face uncertain trading conditions with the likelihood that some will not survive. Directors will inevitably find themselves having to take difficult decisions, to maintain regulatory compliance and employee protection and to take appropriate steps to protect the business.

It is important at this time to review a business’s insurance policies. If there are claims to be made then the policyholder will need to ensure compliance with policy terms relating to notification of claims and the provision of information and assistance to Insurers.

A denial of cover by Insurers may not be a result of insurers deserting the battlefield but simply a reliance on the contractual wording of the insurance policies, wording which may work against the Insurers as much as it might work for them. Businesses should not consider that dealing with insurers will put them on the battlefield. Working with insurers and brokers to resolve claims and understand coverage will be a more productive route for a policyholder to obtain a potential recovery of loss. But the starting point is always to understand the coverage afforded by reviewing the detailed terms of the relevant insurance policies.

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