Organisations of every size have borne the brunt of the Government lockdown, imposed to reduce the risk of spreading Coronavirus, with many losing their entire business revenue overnight.
Planning for such eventualities included adding business interruption (BI) cover to already expensive business insurance, safe in the knowledge that when trade is disrupted through no fault of their own, the policy would pay out and cover the inevitable losses.
However, the growing number of refused claims is leading to calls for Government intervention, as even those businesses that included cover for forced business closure have had claims dismissed out of hand.
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:
Business Interruption (specific illnesses)
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.
Business Interruption (non-damage denial of access)
Another relevant extension is cover for losses because 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 with schools and bars/restaurants directed by the government to close prior to a full lockdown.
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. 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, but you should consult your broker/insurer if you are in any doubt.
The current situation
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 premium 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.
Protecting your business
Understandably, a lot of businesses will feel cheated by the decision to deny pay-outs, especially as they feel they have taken steps to protect themselves from such a scenario.
The future of many businesses currently hangs in the balance and receiving the money for a claim could be the only way of coming through this difficult period.
If your business closes or is otherwise disrupted by coronavirus, you might have business interruption insurance to make up the deficit, but if you have tried that and the insurer has declined your claim, then contact a team of experienced lawyers for advice.
About the author: Susan Hopcraft is a partner in the Dispute Resolution team at Wright Hassall. She deals with contract claims, including service agreements and restrictive covenants, insurance policies and issues relating to guarantees, warranties and breach of confidence. Susan also advises on professional negligence claims against valuers, surveyors, solicitors, brokers and accountants, fraud issues and recoveries for lenders.
About the firm: Wright Hassall is a top-ranked firm of solicitors based in Warwickshire, providing legal services including: corporate law; commercial law; litigation and dispute resolution; employment law and property law. The firm also advises on contentious probate, business immigration, debt recovery, employee incentives, information governance, professional negligence and private client matters.