Coronavirus and business insurance cover

Further to the Chancellor’s announcement on initial financial measures to help alleviate the effects of the coronavirus outbreak (COVID-19), businesses are well advised to check the exact nature and extent of their insurance policies to understand what cover they are entitled to.

The Association of British Insurers (ABI) have helpful advice on their website including a Q&A on the most common types of insurance issues under consideration.

Of acute concern to businesses, particularly those in the hospitality sector, is whether they have Business Interruption cover to provide some reimbursement of revenue lost due to the effects of the outbreak. For example, the business may be forced to close because of an order issued by the police, government or other competent authority following the spread of coronavirus.

Business Interruption cover normally applies when there is physical damage to the insured property, such as in the event of fire or water damage, to provide lost profits incurred during the period of reinstatement.

Whilst stand-alone policies for pandemic coverage should provide Business Interruption cover for the effects of COVID-19, many general combined business policies will not provide cover unless, if available on inception, there was a specific extension added. Otherwise it is common for policies to provide an exclusion that it will:

‘not provide cover for any action taken in controlling, preventing or suppressing the spread of any disease.’

Potential cover may be available under a combined policy for ‘a specified disease’ but that may be limited to the disease occurring at the premises or within very close proximity of it. Furthermore, insurers may argue that coronavirus is not one of the diseases specified.

If the policy provides that cover is available for the effects of a pandemic then the Chancellor’s statement on 17 March 2020, that the government declares COVID-19 has reached pandemic status, will trigger the entitlement to cover.

Looking forward, in addition to clarifying existing cover, advice from insurance brokers should also be sought on what type of cover is available on the UK insurance market for loss of revenue arising from the consequences of a non-specific disease outbreak.

If insurers decline cover under current arrangements then legal advice may be desirable on policy coverage interpretation.

For further information please contact Alan Davies, Partner in BDB Pitmans’ insurance team.