COVID-19 Insurance Q & As for businesses

The continuing spread of COVID-19 is an unprecedented global crisis. Whilst this guidance aims to offer some general information about the current situation, we strongly recommend that you speak to your insurers directly, if you haven’t already, to confirm the type of cover that you have purchased, to clarify what your policy covers you for and how insurers are working with their customers to process claims.

Does insurance provide cover in the event of a pandemic or crisis?

Standard commercial insurance policies provide cover against a wide range of day to day risks including damage caused by fire, flood, theft and accidents involving employees. Businesses may have some insurance to cover losses arising from certain types of business interruption or the death or incapacity of key personnel. Only a very small number of businesses choose 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 COVID-19 pandemic. The Government’s clarification this week that COVID-19 is a ‘notifiable human disease’ will help some of these policyholders claim if the other terms and conditions of the policy are met.

What does business interruption insurance typically cover?

Business interruption insurance covers a business for loss of income during a period (or periods) when ‘business as usual’ is impossible due to an unexpected event arising from a set of perils that will generally be specified in the policy. It aims to replace certain losses sustained by the business during the period of the disruption. The insurance may compensate the business for any increased running costs and/or shortfall in profits as the result of the event, up to certain limit that is set out in the policy.

Does standard business interruption insurance provide cover for businesses who are not able to operate due to the effects of COVID-19?

Standard business insurance policies are designed and priced to cover standard risks and are therefore very unlikely to provide cover for the effects of global pandemics like COVID-19. This includes forced closure by the authorities. Businesses may have chosen to purchase cover that will specifically provide for business interruption arising from notifiable or infectious diseases and for certain notifiable disease extensions, cover may apply if other policy conditions are met. This type of extension is non-standard and, even if an extension is purchased, it may not include more unusual risks – such as those posed by new diseases.

Does a ‘notifiable disease’ extension to business interruption cover my business for COVID-19?

Where policies cover losses arising from interruptions caused by the outbreak of a disease, cover is usually subject to the disease being declared a ‘notifiable human disease’. COVID-19 was declared a notifiable human disease by the UK Government on 5th March. However, this does not have retrospective application, so for policies that require a disease to be notifiable as a pre-condition to coverage, there will be no coverage prior to this date.

Most notifiable disease extensions cover specific diseases that will be named in the cover. If COVID-19 is not specified, then cover may not apply. However, some notifiable disease extensions are more general. Where no specific diseases are specified, business interruption cover for COVID-19 may apply but may only respond where the disease has been detected at the premises that are to be closed. Policies vary, however, and others may only require there to have been an order from a competent authority that the premises be closed as a result of COVID-19. This can be significant because if a business is closed as a precautionary measure, the business may not benefit from cover.

Are there any other extensions to business interruption that may provide cover?

Some coverage may exist if you have purchased a ‘non-damage, denial of access’ extension to a business interruption policy. Again, however, this is a non-standard extension and this type of cover is not generally included in standard business interruption policies.

Generally, ‘denial of access’ cover applies to cordoned off areas and loss of trade resulting from a denial of access to the premises (e.g. as a result of a police cordon). If a business is forced to close or is told to close by an appropriate authority, however, this could trigger a claim under a ‘non-damage, denial of access’ business interruption extension if the infectious disease cover is unspecified or if it includes COVID-19.

Next steps

Businesses should:

• Speak to their insurers to ensure that the terms of the policy are understood
• ensure that the actual position is communicated to the managers or the board as part of the business continuity discussions and preparations
• consider the terms of the insurance policies when implementing broad business continuity plans
• note that, as with all insurance policies, the policyholder is under a duty to minimise its loss. The steps that can be taken will be specific to each business, but might include facilitating home and remote working and taking steps to reduce variable costs, where possible.

If you would like to speak to someone within our Corporate team please contact our offices on 01228 552222 or e-mail hello@burnetts.co.uk . Please note that both telephone and video appointments can be arranged during this period of self-isolation.