BY: Susan Hopcraft is a partner in the Dispute Resolution team at Wright Hassall solicitors
Although the social distancing measures are slowly being relaxed, the lockdown has come at a cost for many businesses, with some losing their entire revenue overnight.
Understanding that a difficult period was around the corner, many owners decided to add business interruption (BI) cover to their already expensive insurance, believing they would be covered should the measures disrupt business operations.
However, the cover hasn’t had the desired effect for many businesses and the Government has been urged to get involved, as a growing number of refused claims are recorded.
Starting class actions could offer one solution, but businesses must do more to push their claims and the government’s financial regulator (the FCA) is now taking an active interest. There may be policies in place that apply to coronavirus losses, for which additional premiums will have been paid.
What are BI policies?
Standard business interruption covers a business for loss of income during periods when they cannot carry out business as usual due to physical damage: typically damage to the premises caused by a storm, fire or flooding.
The insurance might compensate the business for any increased running costs and/or shortfall in profits for a set period and financial limit.
Some policies have extensions that might apply to coronavirus losses, for which additional premium will have been paid. There are two main likely clauses:
‘Specific illnesses’ clause
Most extensions cover specific diseases, listed in the cover. These are diseases that are well known and understood. Covid-19 will not be named though, and this is likely to lead insurers to deny claims.
Businesses will feel aggrieved by that when they bought cover for this type of circumstance. The argument will be that the clause was intended to cover disease closure and the clause could not have named a disease that did not exist.
Some disease extensions are more general and do not specify certain diseases. In these cases, business interruption cover for Covid-19 is more likely to apply.
Usually Covid-19 must have been present at the premises or within a short radius. This is because business interruption is supposed to cover the short period while premises are shut down for a deep clean.
Another relevant extension is cover for losses as a result of people not being able to access the premises due to specific circumstances such as the police cordoning off an area due to an event such as terrorism.
The clause might cover inability to trade due to a government restriction, which is what has happened now with schools, then bars/restaurants directed by the government to close prior to a full lockdown. These clauses might cover loss, again depending on the wording.
Another issue arising out of businesses being temporarily closed is the need to let your insurer know if the insured premises are unoccupied.
There may be a clause in your property insurance that requires the premises to be occupied. However, the Association of British Insurers (ABI) has suggested that insurers will be more flexible over the requirements around these types of clause under current circumstances.
For some businesses, the business interruption extension might be worded to enable recovery of losses due to coronavirus closure. For others, particularly where Covid-19 is not included in a specific list, cover may well be denied.
Insurers will say they do not cover pandemics and do not charge premiums commensurate with that exposure. They might also say that it is for government to bail out businesses, for example, by the furlough scheme because this pandemic is so widespread and unexpected that it falls outside what private insurance ought to cover.
Insureds will say that they were paying extra premiums to extend cover to deal with precisely this sort of risk. Just because the disease was not known, that should not exclude them from cover.
The government has asked the insurance industry certain questions. Mel Stride, the Chair of the Treasury Select Committee, wrote to the ABI on 25 March asking for data and information on the industry’s response to coronavirus.
The ABI replied and, swiftly after that, the FCA announced that it intends to bring action against certain insurers for a decision on whether Covid-19 losses are covered.
Protecting your business
Given that many businesses have taken steps to protect themselves from such a scenario, there is little comfort that can be given to businesses who have had claims dismissed.
The uncertainty of the current situation means that a successful claim could make all the difference for those companies trying to weather the storm and come out the other side in a strong position.
If your business closes or is otherwise disrupted by coronavirus, you might have business interruption insurance to make up the deficit.
Your insurance broker can give you a preliminary view but, if you have tried that and the insurer has declined your claim, then contact a team of experienced lawyers for advice.