Many companies will have insurance to cover financial losses when their business is interrupted by an unforeseen event. This extends in some cases to illness; we set out below some areas for companies to consider as they grapple with the challenge of coronavirus.
The types of insurance policy that may cover the current pandemic include:
Business interruption insurance
Your business interruption insurance may be a free-standing policy. It could also be a specific section included in your general business insurance. It is therefore important that you check your policy schedule to see whether that section is operative.
While every policy is different, a typical business interruption cover will insure lost profit resulting from actual damage to business premises. The more normal claims would be for lost profit while a business closes for repairs after physical damage caused by fire or flood. The business interruption cover tides the business over until it is back in operation and is usually time-limited, perhaps for 12 months.
But some policies also have cover for losses caused by specified illnesses. If, for example, your business has to close as a result of a disease such as Covid-19 then you should check your cover to see whether you have business interruption and what the terms of that cover are.
It is unlikely that the cover will refer to COVID-19 itself. Still, it became a notifiable disease on 3 March 2020 in England and Wales, and if you have cover for ’notifiable diseases’, then losses from that date might be covered.
Public liability insurance
In the longer-term liability, cover may also become relevant if claims are made by customers or visitors to premises where businesses are said to have failed to protect them from the risks of coronavirus.
Employers’ liability insurance
Similarly, businesses need to keep their employees safe, and cover may also become relevant if businesses are said to have failed to protect their employees from the risks of coronavirus.
Which sections of the insurance policy might be relevant?
Standard business interruption insurance covers a business for lost profit during periods when they cannot carry out business as usual due to physical damage. 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 clauses likely to respond.
Business interruption as a result of specific illnesses
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 because they bought the 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, an infectious disease 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. We believe some wordings on which we have advised are wide enough to allow cover.
Business interruption for non-damage denial of access
Another relevant extension is cover for losses as a result of people not being able to access the business premises due to specific circumstances. This could be things 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 the inability to trade due to a government restriction, which is what has happened now with school closures, then bars, restaurants, dentists and leisure centre closures, and then a full lockdown directed by the government. These clauses might cover loss, again depending on the wording.
What other parts of the insurance policy should you look at?
You will need to consider how much cover you have and for how long, which should be in your insurance schedule. Typical business interruption cover is for 12 months loss of profits, capped at a set sum.
You particularly need to consider the claim notification terms, since any delay in notifying a claim could be considered by insurers to be a breach of terms meaning they don’t have to indemnify.
What practical steps should you take?
Your first port of call should be your insurance broker without delay, even if you are unsure that you have cover. They will notify insurers and make a claim.
Gather all relevant data as to when you had to close your premises or stop trading, with reasons. Capture any relevant government advice that you relied on (it may no longer be available on websites at a later date when you need to rely on it).
Start to gather accounting information showing what your losses are, both additional expenses caused by Covid-19 and lost revenue.
What sorts of claims are being successful?
So far, the majority of general business interruption claims are being denied because the insurance industry does not believe it covers pandemics within the general cover. We believe in due course, some claims will succeed where the policy wording allows. This might be where business premises have been forced to close because an employee has developed Covid-19 on-site, or where premises have been closed on government advice because the business cannot operate remotely by home working.
For example, the Wimbledon tennis tournament has reportedly made a successful claim on a specific pandemic insurance cover that it put in place to deal with a pandemic type cancellation.
This appears to be a one-off policy set up following the SARs outbreak. Still, if there are other event cancellation covers obtained specifically for a pandemic event, then those claims should succeed.
What claims are being denied?
Generally, all claims are being denied based on the industry’s position expressed as follows by the Association of British Insurers.
“It is important to note that no insurance market in the world provides widespread insurance coverage for pandemics and the UK is no exception. For such cover to be available at affordable prices for businesses would require a very significant subsidy from the State given the scale of business disruption we have seen with the COVID-19 pandemic. Only a tiny minority of businesses will have chosen to buy any form of cover that includes local closure due to an infectious disease. An even smaller number will have cover enabling them to potentially claim on their insurance for the presence or impact of the coronavirus pandemic.”
What do you need to prepare to make a claim?
Your broker will notify the claim to start with, and generally, a claim form will then follow from insurers, which you need to complete. Insurers will ask questions about the circumstances giving rise to the claim to consider whether it falls within policy terms. They will also ask for information to quantify losses, which could be detailed financial records going back 12 or 24 months.
Is it legal to deny a claim?
An insurance policy is a simple contract. It is a contract by which insurers offer to indemnify certain things, in return for the premium. If insurers consider they are not obliged by its terms to pay, then they will say so, and that dispute will then need to be resolved, but it is not illegal to deny a claim.
What can you do if your insurer refuses to cover?
You should complain to the insurer. If they do not agree with you, then you can refer a complaint to the Financial Ombudsman Service. The Financial Ombudsman Service can force the insurer to pay up to £350,000, but only certain small businesses are eligible, and this route can take time.
Alternatively, you can make a claim at Court for breach of contract, or in some policies, you might be required to use private arbitration rather than Court.
If your insurer has declined your claim, we can assist in framing any complaint to the Financial Ombudsman Service or legal claim in an optimum way.
The insurers’ regulator, the FCA, has also just announced that it is bringing claims against certain insures for decisions on whether the policy wording covers Covid-19 claims. Details are limited just yet, but we are monitoring this very closely. We believe some of these claims are likely to be made by arbitration rather than the Court. In all cases, they ought to be fast-tracked.
If you have one of those policies, it is likely to be best to await the outcome of the FCA action, since that could unlock the principle of policy cover without your direct involvement. It may be worth asking your insurer whether your policy is one of those involved in the FCA action.
Every policy is different, and if your business has suffered a loss arising out of the pandemic, then we recommend urgently reviewing all policies and notifying claims, even as a precaution, soonest. We can assist in presenting claims to maximise your ability to recover losses.
Has your business interruption claim been denied?
Your insurance broker can give you a preliminary view of your business interruption insurance cover, but, if you have tried that and the insurer has declined your claim, then please get in touch.