The hospitality and leisure sectors are among the hardest hit by the Covid-19 pandemic so far with most now subject to enforced closure. The message in the media has been that business interruption insurance will not provide cover for losses in relation to COVID-19. We do not consider that it is this simple and strongly encourage businesses to check their insurance position.
On 4 March 2020, the Association of British Insurers released a statement that said:
Standard business insurance policies are designed and priced to cover standard risks and are therefore unlikely to provide cover for the effects of global pandemics like Covid-19
On 17 March 2020, the headline of this BBC article read:
Coronavirus: No insurance cover for most virus-hit businesses
We urge businesses to think again.
What You Should Be Doing?
1.Check your insurance policies
Only a minority of insurance policies that will provide cover in the present circumstances but you should not assume your business is not covered.
In particular, check the terms of your property damage insurance. It is possible that interruption to the business may be covered as an extension to this policy.
Your insurance could cover loss of profits or income in the event the business is interrupted or adversely affected due to reasons that are beyond your control. Some policies require the interruption to be caused by physical damage that is insured under the policy (for example, by a flood) but this is not always the case.
2.Contact your broker
If you purchased your insurance through a broker, they should be able to inform you whether the policy provides you with cover in the current circumstances. Your broker should also be able to contact your insurer on your behalf to make and progress any claim.
3.What should you be looking for in the policy?
- Restrictions on access – Some policies contain cover for interruptions caused by restrictions on access to and/or use of business premises without the need for the premises to have suffered damage. You should check whether your policy provides cover if access to your business premises is restricted as a consequence of public authority order, advice or similar.
- Infectious/notifiable disease cover – You should also check whether your policy includes cover for restrictions in use of your premises as a consequence of ‘infectious disease’ (sometimes referred to as ‘notifiable disease’) cover. It will often be a requirement under the policy that there has been an incidence of the disease at your premises. We have, however, recently seen policies where this is not the case and cover is wider, particularly where cover is provided for restriction of use of business premises as a result of public authority advice in response to infectious disease.
Where your policy refers to ‘notifiable disease’, cover will only be available in respect of diseases that are notifiable under the Health Protection (Notification) Regulations 2010 (the “Regulations”). On 5 March 2020, the government passed an emergency statutory instrument that amended the Regulations to add COVID-19 to the list of notifiable diseases. However, some policies we have seen require the insurer’s prior written consent before accepting new diseases as notifiable for purposes of the policy.
- Waiting period – Finally, if you do believe you have the benefit of business interruption cover in the present circumstances, you should check whether there is any ‘waiting period’ in the policy before you can claim cover (for example, a certain number of days your business must be closed before the business interruption cover kicks in).
4.What if I decided to close my business?
If you decided to act on the government’s advice and voluntarily put in place a temporary closure of your business before government required you to do so then your business interruption insurance policy may not respond.
5.How should I be minimising my losses?
It is a requirement of most policies that you should act to ‘mitigate’ or minimise any losses that you may suffer. The normal way this requirement is satisfied is by trading from alternative premises. Of course, these are not ‘normal’ times and trading from alternative premises is not a viable option.
Where possible, insurers will likely expect policyholders to be taking reasonable steps to continue trading. Such steps could include implementing remote working for office staff, attempting to carry on fulfilling orders from suppliers or carry on providing a service (such as takeaway food) and attempting to reduce any costs to the business. It would not require a policyholder to pivot to an entirely new business model or repurpose their premises.
Some insurers may attempt to argue that policyholders have to enforce any existing contracts by, for instance, requiring customers to continue to pay membership fees (for a hotel spa or gym) or other recurring fees even during the period of closure, to mitigate any losses to the business. This will need to be looked at carefully.
The Financial Conduct Authority will expect insurers to treat customers fairly, and has released guidance on its expectations of insurers in relation to COVID-19, which states:
We would not expect to see [the customer’s] ability to claim impacted by circumstances over which they have little control
6.If I need any advice, who should I contact?
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.