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We are extending our services to review and advise on the business interruption cover of any business.

Covid-19 and Business Interruption Insurance – Am I Covered?

March 2020

We are extending our services to review and advise on the business interruption cover of any business, whether they are an existing client or not, on a without prejudice basis. There will be no charge for this service, which we hope will provide some certainty to business in this uncertain time. Please contact a member of our team and we will do our best to assist.

Businesses throughout the UK and worldwide are understandably concerned at the continuing spread of the Coronavrius and the financial impact it is having on their operations. Below we consider a number of Policy Wordings which are operational in the UK, and explore how they may respond to the current Coronavirus outbreak. We would caution that Policy Wording drafting’s vary significantly, and we would always recommend you seek advice on your particular policy coverage.

Standard Business Interruption Cover

A standard U.K. Business Interruption policy is triggered by physical damage to property used by an insured at its premises. For instance, a manufacturer suffering a fire at its premises would trigger the business interruption section, where this has been purchased. It is unlikely that a successful argument will be made to the effect the coronavirus has “damaged” the premises, particularly as the damage typically needs to have occurred from a defined peril, with contamination normally being excluded as standard.

The next step is to consider whether any Business Interruption Extensions have been purchased, and if they may afford cover, although the following extensions are normally subject to fairly modest sub-limits (and sub-limits are often subject to an annual aggregate) and only tend to cover interruption to the business for a relatively short period of time.

Infectious Disease / Notifiable Disease Business Interruption Extension

The Infectious Disease Extension is the most relevant extension for most policyholders following the coronavirus spread, although there are number of inhibitions to cover.

The majority of Insurers specify the list of diseases for which they agree to indemnify under this section. As a novel disease, Coronavirus is therefore not listed and therefore not covered.

A minority of wordings give cover for any “notifiable disease”, however there exists several obstacles to cover;

  • The indemnity periods are typically very short, often 3 months.
  • The limit of indemnity provided by this extension is often inner limited, commonly to £100,000.
  • Many of the policy wordings we have reviewed require there to have been an incident of the disease at the insured premises to trigger cover. In such an instance mandated closure due to an outbreak of Coronavirus in the city or country alone would not trigger cover.
  • Occasionally, an infectious disease which has been declared a pandemic by the World Health Organisation is excluded.
  • We have seen references to SARS (Severe Acute Respiratory Syndrome) “and any manifestation thereof” excluded by Wordings, and at least one Insurer stating that the Coronavirus falls within this exclusion.
  • The business interruption would only be covered from the date the disease became “notifiable”, which in England was 5th March 2020. Any interruption losses sustained beforehand would not be covered.

Some Policies offer cover for closures ordered by local authorities, however the trigger for these often require more than “advice” from the government, but a forced closure, and sometimes cover only triggers after an occurrence of the disease at the insured premises.

Denial of Access Extension

Most of the Denial of Access clauses we have reviewed require there to be physical damage to nearby property for the Extension to operate, therefore is unlikely to be triggered. Notifiable diseases are commonly excluded under this Extension, given they are instead covered under the Extension detailed above.

Non-Damage Business Interruption Extension

A Non-Damage Business Interruption Extension may take the form of either a Denial of Access Non-Damage or a Loss of Attraction Non-Damage (or a combination of both) Extension. These Extensions will either exclude disease, or will not mention disease in its drafting. If these Extensions do not exclude disease, whilst it may not be the intention of insurers to cover disease, it may still be possible to argue cover applies, if for example the insured location is closed down or sealed off on the instruction or advice of the appropriate statutory body. Some extensions will require that the reason is because of some sort of danger or disturbance. Some extensions will also apply if the area in the vicinity of the insured location is closed down or sealed off.

Orient-Express Hotels v Generali – Consideration of other business interruption factors, other than damage to the insured property

We would caution Insurers possible attempt to curb a valid Business Interruption claim following the case of Orient-Express Hotels v Generali, where the standard Business Interruption cover referenced local trends in calculating any business interruption payment. In this case a hotel was damaged by hurricanes, but the Insured could not satisfy the damage to their hotel was the sole cause of their business interruption which followed. The court found that due to the widespread devastation to New Orleans, which was also effectively closed for several weeks after the hurricane, even if the hotel had not been damaged, the hotel would have sustained the same interruption to their business but caused by the city’s closure and not the damage to the hotel. As a result, it was held that there was no cover under the standard business interruption sections, although limited damages were awarded under Prevention of Access and Loss of Attraction extensions.

Article by Stefan Daines, 20th March 2020