Catrin Povey looks at what steps businesses with business interruption insurance can take to protect themselves.
Business interruption insurance covers the financial losses of businesses during periods when they cannot trade as usual due to an unexpected event. But policies tend to be tailored of the needs of each policyholder, and they vary significantly.
A basic policy would only cover property damage caused by standard risks, such as fire, and is unlikely to cover your business for COVID-19. Although you may be able to prove the virus’ presence by swab-testing, it doesn’t really change the physical condition of a surface it touches so actual damage to your premises is hard to prove. Even if you succeeded, research indicates that COVID-19 does not stay infectious outside of a host for more than a few days and that thorough cleaning would remove it, so any loss would be minimal.
However, some business interruption policies provide broader cover and contain non-damage extensions for notifiable diseases and infectious diseases, or denial of access. These are more likely to apply to losses relating to COVID-19.
Notifiable disease/infectious disease
A notifiable disease/infectious disease extension will typically apply if a disease is found on the premises, or within its vicinity. It is designed to cover situations where premises have been infected by a highly contagious disease and needs to be closed for deep cleaning.
On 6 March 2020, the Welsh Government classified COVID-19 as a notifiable disease. This means that you may be covered for losses related to the new coronavirus if your extension refers to “notifiable diseases” in general and there has been a case in your premises or nearby. However, because the disease was unknown until recently, you’re unlikely to be covered if your extension is linked to a specified list of diseases.
Denial of access
A denial of access extension will typically apply if you are required to close your business by an appropriate authority in the context of an emergency. It is designed to cover situations where access to a business is prevented or restricted due to a nearby incident, for example a sewage leak.
On 20 March 2020, the UK Government required, under The Health Protection (Coronavirus Restrictions) Regulations 2020, all restaurants, cafés, public houses, cinemas etc. to close. If you are in this situation, you may be covered depending on the wording of your insurance policy.
Contact your business interruption insurer as soon as possible
You can do this directly, or via your broker if you have one, and find out whether they will provide cover. Insurers will want to help as much as possible so be up-front about your present position.
Start preparing your claim now
This means keeping a note of key events, such as when you closed, details of your current operations (for example, if and when you started offering take-aways and how much income this has generated), details of any people who had COVID-19 while on the premises, plus anything else you consider relevant to the claim.
Check your policy for specific conditions on unoccupancy or vacancy
And ensure that you are complying with these conditions as far as possible. Typical unoccupancy conditions may include a condition to check your premises once a week and keep a log of inspections. Insurers are likely to be flexible on some of these conditions given the current situation, but such flexibility will likely only apply if you can show that you’re attempting to mitigate the risk.
Some insurers (like MGA Aqueous Underwriting) have already confirmed that they will remove certain unoccupied exclusions for some policyholders, and others (like Direct Line, Allianz and AXA) have lengthened the period of unoccupancy in their policies to 60 or 90 days from 30 days, so do check whether any changes to your policy have been made by your insurer when you contact them.
This is clearly a very difficult and uncertain time for businesses. We have been trying to alleviate some of the stress, by reviewing policies and preparing claims on a no-win, no-fee basis so that you have certainty on costs and are not taking on any additional risk. This has already resulted in success where an insurer has reversed their initial decision on cover.
Insurance policies can be complex contracts to understand, but do not assume that your insurer will not pay out just because your policy is not clear on the point. While some insurers (like AXA and NIG) have confirmed that COVID-19 will not be covered under their policies as they only cover specified diseases, others (like RSA, Aegas and Zurich) have all said that they will look at claims on a case-by-case basis.
If you have any concerns or query, please don’t hesitate to get in touch.