Coronavirus - Can Business Interruption Cover Protect You?
With many businesses currently closed or running at significantly reduced capacity, they may well be looking at their existing insurance cover (usually business interruption cover) to see whether claims can be made to recoup at least some of their losses.
In many cases, this can be crucial to the ongoing survival of the business.
What Is Business Interruption Cover and How Might It Apply?
Business interruption insurance is designed to cover a business for loss of income during a period where it cannot trade as usual because of an unexpected event. For example, if a company's premises or key equipment is damaged by a flood or fire. Some policies may also provide cover when customers are unable to access the company's premises due to damage to other property in the vicinity.
Many businesses are now seeking to argue that 'damage' in this context does not simply be interpreted to mean 'physical damage' but also means wider, more intangible damage that has been caused by the necessary closure of businesses due to the coronavirus (COVID-19) pandemic, such that their business interruption cover should respond.
Whether or not there is cover will of course depend on the specific policy that the business had purchased, together with any extensions, and the precise wording of that policy. Businesses should therefore consider these in detail, with assistance from their broker if necessary.
Insurers may well seek to argue that the cover should not apply in these circumstances and, indeed, the Association of British Insurers has already said that whilst its members expect to pay out £900 million for business interruption claims, many business owners will be uninsured for pandemic situations.
However, if cover is denied, this does not necessarily mean there is no scope for businesses to challenge this. We are not aware of any published case law on coronavirus (COVID-19) insurance coverage issues to date, which is of course not surprising given that the virus is still so new. To a certain extent both insurers and businesses are therefore in uncharted territory. However, there are other precedents and decisions that could be helpful to support coverage challenges, depending of course on the precise wording and definitions contained in the policy. If coverage is denied it may therefore be sensible to seek advice from your broker and/or legal advice on the position, particularly if the issue of whether coverage exists could be business critical.
What to Do Next
It is important to note that, if you are able to establish that you have cover, there are a number of other steps you will have to take:
- You will need to ensure you have complied - and continue to comply - with the general conditions of the policy.
- You will need to establish what loss has been caused by the damage/interruption that is covered by the policy.
This will need to be calculated and evidenced properly. The policy may already provide a formula or method for calculating loss in these circumstances, and this should be applied with support and advice from a specialist loss adjuster. - The level and scope of cover available will be subject to a limit, as detailed in your policy documents.