Business insurance cover during the COVID-19 pandemic

This article addresses some of the types of insurance potentially relevant during the current COVID-19 pandemic and related effects on businesses.

This is a summary and you should please check individual policies for exact details.

Business interruption insurance

Business interruption insurance is often contingent on there being physical damage to the property in question; making it unlikely to be of any help in the current situation. However, there are various extensions to insurance policies which may cover the effects of the Covid-19 pandemic.

a. Notifiable diseases

Some policies will have cover for revenue losses stemming from notifiable diseases within a specified radius of the premises (generally 25 or 50 miles); however, many of these clauses contain an exhaustive list. It is very unlikely that COVID-19 will be specifically covered by this clause unless the policy was entered into following the outbreak of the virus in December 2019.

Some clauses may exclude diseases that have an increased likelihood of developing into a pandemic – these contain those such as SARS, and strains of flu.

In wider clauses, the cover may extend to all diseases listed as 'notifiable' by the local authority. COVID-19 was declared a notifiable disease on 5 March 2020; and so this type of clause may cover losses arising from this date onwards. Some prudent clauses will cover 'pandemics' generally. COVID-19 was declared a pandemic by the World Health Organisation on 11 March 2020 and so again, this type of clause may cover losses arising from this date onwards.

The detail of the clause should be looked into – it may only cover where the disease is present on the particular premises; which will not be the case for many businesses that have closed. Exclusions must also be considered.

b. Prevention of access/ loss of attraction

Some policies will cover losses arising from a prevention of access to the business premises. Unfortunately for the insured, this is usually limited to physical preventions – leaving the insurer with a strong argument that the Government's measures cause no physical obstruction. In wider policies, there may be wording that covers Government advice/orders.

What about policies restricted to where there is 'material damage' to the property? Some policies will cover denials of access and/or loss of attraction in connection with material damage to the property. There is an argument the pandemic has been caused by both the infection of persons AND the contamination of property (this is the element that may constitute material damage). The New Zealand case of Miss Jay Jay [1987], ruled that the policy holder may seek to recoup losses caused by both of such.

There is however a counter argument from the insurer that the denial of access and/or loss of attraction has been caused by the Government ordered lockdown – which is unconnected to any material damage to the property.

c. Malicious damage and theft

With many premises almost guaranteed to be empty and much of the police force being occupied enforcing lockdown, there is a slight chance that malicious damage and theft of premises will increase. Many insurance policies will be subject to standard provisos reliant on the owner of the premises – for example, to lock all windows and doors, to set security alarms and so on.

Following AC Ward & Son v Catlin (Five) Ltd [2009] EWCA Civ 1098 there is an argument that where businesses are to be locked down in a hurry as a result of Government orders, Courts may be sympathetic to arguments from insureds that they were not aware that they had failed to properly secure the premises and set the necessary alarms.

Section 11 of the Insurance Act 2015 allows the insured to reject the application of a warranty if they can prove that on the balance of probabilities, the failure to comply with such could not have increased the risk of loss. In contrast to the argument above, some insureds may claim that due to the streets being empty, the failure to set an alarm did not make it any more likely that the premises would have been damaged/ stolen from – since everybody was at home (or at least meant to be). Of course, arguments of this kind are weak, there are many instances in which people would be in the vicinity of the premises, from rule breakers to those with no fixed abode.

Event cancellation insurance

Event cancellation insurance covers the cancellation, postponement, abandonment and curtailment of events; resulting in a loss to a business. Unfortunately for insureds, many policies will not cover instances as a result of a 'communicable disease' or quarantine or restriction because of a communicable disease. The nature of transmission of COVID-19 makes it by definition a communicable disease. This limits the application of event cancellation insurance to those policies which do not have such exclusion.

When able to use event cancellation insurance, the following provisos must be considered:

1. Notices to be made – the insured should ensure that they comply with any relevant notification requirements set out in the policy.

2. Mitigation – the policy may insist that the insured must prove that they did everything that they reasonably could do so to mitigate the losses as a result of event cancellation, postponement, abandonment or curtailment.

3. Voluntary cancellations – many policies will not cover circumstances where the event host cancels the event voluntarily, rather than by elements outside of their control.

Liability insurance

Liability insurance is relevant where businesses have claims brought against them for failing to protect certain people from the effects of the current pandemic. This is unlikely to be proven in many cases given the prevalent nature of the virus. However, employer's liability may be a concern here; particularly the failure to provide adequate protective equipment such as masks, gloves and sanitising products. A further concern is Director's and Officer's liability. Shareholders may argue that the actions of the company have caused a financial loss to them, arising ultimately from the pandemic. For example, this could be the failure to implement adequate contingency plans within the business to protect against the loss of productivity/trade following the effects of the pandemic.

Conclusion

Both parties will have to consider the wording of the policy very closely. Many insureds will be disappointed by the scope of their cover. On the other hand, where policies cover the effects of COVID-19, the losses recovered are likely to be large. Many insurers will be hoping that their agreed exclusions were particularly wide.