When I notified my insurance company that I was seeking to invoke my Business Interruption Policy, I was advised that they were refusing to indemnify me. They said this was on the basis that the notifiable disease (COVID-19) did not emanate from my office. I was taken aback.
What is the point in having Business Interruption Insurance if insurance companies are not going to step in when it is required? When I thought of the money that the insurance industry makes on the back of the SME sector, I was reminded of that scene in The Wolf of Wall Street when Leonardo DiCaprio’s character turns to the camera and says “The real question is this: Was all this legal?”. His conclusion? A resounding unquestionable no, to put it gently.
On 20 February, Simon Harris, the Minister for Health, signed the ‘Infectious Diseases (Amendment) Regulations 2020’ to include the coronavirus COVID-19 on the list of notifiable diseases. This gave businesses hope that their insurance cover will respond to coronavirus-related losses because a declaration as a notifiable disease means that medical professionals must report suspected cases to public authorities immediately. The term is also commonly used as a trigger in certain insurance policies.
Businesses are increasingly facing disruption to supply chains, loss of customers and workforce illness as a result of the pandemic, any of which have the potential to affect revenue generation.
However, businesses should check the terms of their cover carefully to see whether any potential losses are covered. Proving that coronavirus is the cause of any insured losses may be challenging where they are multiple intervening causes, such as disruption to supply chains.
Business Interruption Insurance
However, the declaration by the Irish government does not automatically mean that coronavirus-related losses will be covered by the likes of business interruption insurance.
Business interruption insurance traditionally covers loss of revenue or profit experienced by a business following damage to property and the cost of mitigating that disruption. It is usually added to and forms part of a commercial property insurance policy. The trigger for coverage is property damage – for example, due to a storm or fire – and so this type of policy will not cover losses from any disruption caused by coronavirus where there has been no property damage.
Contingent business interruption insurance is broader and covers loss of profits to a business resulting from disruption to the business caused by loss, damage or destruction of property owned by a supplier of goods. It is intended to cover a situation where a supplier’s business is disrupted and that causes disruption to the insured’s business.
Again, the trigger for cover is property damage, in this case, damage to a supplier’s property – for example, fire at a manufacturing plant. This will not cover disruption caused by coronavirus where there has been no property damage.
Extensions to Cover
The most likely route to cover for coronavirus-related losses are extensions to cover found in some business interruption policies. These are often triggered by non-physical damage such as a closure of premises or denial of access.
There are extensions which specifically cover infections or contagious diseases or losses flowing from the inability to use business premises due to restrictions imposed by a public authority. However, there is no market standard for these extensions, so the wording of the policy must be checked carefully to see what is and what is not covered.
The current coronavirus outbreak appears to satisfy some definitions of disease now that it has been designated as a notifiable disease and declared a ‘pandemic’ by the World Health Organisation (WHO). Some policies even cover business interruption where there has been a notifiable disease within a certain radius of the insured building.
However, there may still be challenges to claiming under these extensions.
The business would likely be required to demonstrate that it was unable to use its business premises due to restrictions imposed by the government or on the order or advice of the government. If the business chooses to close its premises out of an abundance of caution, there would be no cover. Insurers are likely to take a strict stance on causation.
Some policies require there to be an outbreak at the business’ premises, so there would be no cover where the business has had to close as a result of, for example, supply chain disruption.
The Hospitality sector has been hit the hardest. In last Sunday’s Irish Examiner JP McMahon said he now wonders what is even the point in having business interruption insurance. The Galway chef and restaurant owner said the hospitality sector is being “left out to dry” by the insurance sector.
Officials from the Department of Finance held discussions with Insurance Ireland and most of the key insurers in the Irish market have agreed to reduce premiums for business customers to reflect the reduced level of exposure with many business premises now shut.
Coverage needs to be assessed on a policy by policy basis. In the event of a dispute on the conditions required to secure indemnity, legal action may be required to compel performance of the contract of insurance or compensate businesses, once the cost of the COVID-19 disruption is ultimately measured.
If you have been refused cover or if you wish for us to review your policy please do not hesitate to contact us.
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