Coronavirus – when will business interruption insurance cover kick in?

Following the Prime Minister’s announcement last week and the coronavirus outbreak generally, many businesses face inevitable concerns about their position with their employees and commercial contracts. In this mini-series of articles, our Corporate & Commercial and Disputes teams consider some critical issues which require careful consideration from a legal and commercial perspective, including: (i) the dangers of varying contracts during the coronavirus outbreak, (ii) force majeure clauses (iii) frustration and (iv) what your insurance may (and may not) cover (below).

On 5 March 2020, government passed a law that added COVID-19 to the list of ‘notifiable diseases’. However, this does not automatically mean that coronavirus-related losses will be covered under a business interruption insurance policy. In this article, we consider what business interruption (BI) insurance is and the likelihood of such policies covering you for losses relating to coronavirus.

What is business interruption insurance?
BI insurance covers you for loss of income during periods when you cannot carry out business as usual due to an unexpected event. It aims to put your business back in the same trading position it was in before the event occurred. BI insurance will typically cover situations such as damage caused to your premises or equipment by fire, storm or flooding or the breakdown of essential equipment.

The Association of British Insurers has confirmed that “only a very small minority” of companies, usually bigger ones, purchase an insurance policy which covers the situation where a business has to close due to an infectious disease. An “even smaller number will have cover enabling them to potentially claim for the presence or impact of the coronavirus pandemic”.

Can you claim on your BI policy now that COVID-19 is a notifiable disease in the UK and following government’s mandatory orders for many businesses to close down?
The answer to this very much depends on your insurer and the specific wording of your policy. Key points to consider include:

– Whether COVID-19 is included in the policy’s list of notifiable diseases – but this is highly unlikely given that COVID-19 was unknown until recently;-
– Is the policy drafted on a ‘non-specified basis’ – in this case you may be covered;
– Does your policy include a ‘non-damage denial of access’ – in this case you may be covered if the “denial of access” has been caused by Covid-19.

For businesses forced to shut down as part of government’s response to COVID-19, being able to rely on BI insurance would be a significant lifeline. We therefore recommend you check your insurance policies and contact your insurer to check the position. Several clients have approached us with concerns over insurers’ vague responses to COVID-19 related questions which are open to interpretation. We can help you consider your policy and any responses from insurers. Please do get in touch.