Coronavirus related losses – are you insured?

Many businesses have suffered and will continue to suffer significant losses as a result of the devastating effects of COVID-19.

Typical losses include those caused by the reduction or cessation of trade or by the postponement or cancellation of a specific event. Thoughts therefore turn to whether a business has insurance cover for such losses.

With the position evolving on a daily basis, from travel restrictions to social distancing measures, what is not an insured loss today might become one tomorrow.

The devil is in the detail and whether a business has cover depends on the precise policy wording.

Business Interruption and Events Insurance

Business interruption policies typically only provide cover for losses resulting from physical damage to insured property. Many policies specifically exclude cover for losses arising from “contamination”. Unless a specific extension or endorsement has been purchased it is unlikely that a business interruption policy will cover COVID-19-related losses.

Insurance policies purchased for specific events often contain exclusions for losses arising from, or related to, communicable diseases. One of the main underwriters of such policies has now confirmed that it provides cover for losses resulting from a pandemic in a “very small part of the portfolio”.

This is all consistent with a statement issued by the Association of British Insurers on 17 March 2020: “Irrespective of whether or not the Government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the Coronavirus…. unless a specific non-damage business interruption extension is included..”

Policy extensions and grey areas

For those with a policy of insurance which is extended to include communicable diseases (which the ABI describe as “a small minority of typically larger firms”) the picture appears more positive. However, the precise policy wording is still all important. It is important to consider that:

• The policy will often define which specific diseases are covered. COVID-19 will inherently not be listed in existing policies. On the flip-side, other policies approach this by naming diseases which will not be covered.  From January most insurers have now introduced specific exclusions for COVID-19 in communicable disease cover.
• Some policy extensions have a “notifiable disease” as the trigger, in reference to legislation or the actions of public bodies. The Public Health (Scotland) Act 2008 was amended on 22 February 2020 to declare COVID-19 as a notifiable disease. In England the date was 5 March 2020. In those situations, cover will be provided for losses from the relevant date, but not before.
• The policy may require a connection between the disease and the insured premises. Will a policy holder be able to establish that transmission of COVID-19 occurred at the premises, as opposed to an employee working at the premises being diagnosed with (or self-isolating in suspicion of) the virus?
• Certain policies provide cover for denial of access, linked to the orders of public authorities. At the time of writing the Government has not ordered the closure of venues such as restaurants and bars but has effectively ended the footfall by social distancing measures. In these circumstances there is unlikely to be cover.

What next?

A company’s insurance policy is typically one part of a wider contractual matrix.

The force majeure and termination clauses in the other contracts are unlikely to dovetail with the insurance cover, leading to uninsured losses or liabilities.

It would be prudent for companies to closely review their policy terms and take broker and legal advice in the event of any ambiguity.

That advice should be refreshed in the event that policy coverage is only triggered by an event which has not yet occurred.

Having a complete understanding of insurance cover can help businesses forward plan and reach informed, although often difficult, decisions on its other contracts.