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Covid-19: Business Interruption Insurance

21 April 2020

The basic concept of business interruption insurance is that it offers insured companies a safety net, covering consequential loss of income when their business cannot operate due to certain insured events.

Business owners with this form of cover would therefore be excused for thinking that they are better placed than many to weather the severe disruption caused by the Covid-19 pandemic. However, unfortunately, it has been reported that many insurers are refusing to accept any claims arising from the Coronavirus.

Are you covered?

It can be disheartening to read of insurers not paying out at such a critical time for businesses. However, it is important to remember that there is no industry-wide standard as to how policies deal with a pandemic and whether your business is covered will depend on the specific wording of your insurance policy.

Business interruption insurance is usually taken out alongside commercial property insurance and a basic policy will cover revenue loss and indirect loss linked to physical damage of your business premises (caused by fire or flood for example). A similar type of insurance, contingent business interruption insurance covers you when a critical supplier is unable to operate due to physical damage of their business premises. The trigger in both cases is physical damage and the Covid-19 pandemic is unlikely to have inflicted physical damage on your or your suppliers’ premises.

However, your policy may include elements of non-property damage such as closure or denial of access. Businesses may, for example, be able to make a claim under their insurance policy if its place of business was told to close by a local authority.

You should also check whether your policy covers disease and if so, to what extent. Some policies may list specified diseases (but as Covid-19 is a new disease, this will very likely not be included). Other policies may only include diseases which amount to a ‘pandemic’ or ‘notifiable disease’. In this case, Covid-19 satisfies both criteria with the World Health Organisation naming Covid-19 a pandemic and the government adding Covid-19 and SARS-CoV-2 to the list of notifiable diseases.

Are insurance companies paying out?

Even if you are covered, it has been reported that some insurance companies are either failing to pay out or, are otherwise, seriously dragging their heels. This has resulted in the Financial Conduct Authority (FCA) publishing a “Dear CEO letter” to insurance firms stressing that:

“There are policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.”

The letter imposed increased obligations for insurance companies to:

  1. assess and settle claims quickly where more extensive business interruption cover has been obtained;
  2. where companies are not covered under their policy, to promptly and clearly communicate this;
  3. where it is clear that there is a covered claim and a payment will not be made, to provide a detailed explanation to the FCA; and
  4. if there are reasonable grounds to pay part of a claim, the firm is encouraged to pay an interim payment.

What are your options?

Insurance is a complicated area of law but if you are concerned about your business during this time and have taken out a business interruption insurance policy, then you should review the terms of your policy to see whether you are covered and if so, observe the necessary notification procedures before making a claim.

Small businesses, those with a turnover of below £6.5 million with less than 50 employees or an annual balance sheet of less than £5 million, may be able to refer claims to the Financial Ombudsman Service, which could be a faster alternative than going through the court system. 

This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Dominic Holden or write to us using the contact form below.

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Dominic Holden
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