Business Interruption Insurance

The pandemic gets Insurance Companies running for “cover”

Most businesses will invest in insurance to cover themselves in the event of risks that could damage their business. Such policies typically tend to cover damage caused by products or injuries caused to staff and others. Many policies will also cover “Business Interruption” which is specifically designed cover a business for loss of income during periods where it cannot function. The current pandemic is likely to result in many claims against insurance companies ending up in Court as insurance companies seek to limit their exposure to claims by their business customers for indemnity under their Business Interruption insurance policies.

It is common for such policies to limit the indemnity to circumstances where the business cannot function because its business premises (typically a factory) have been damaged (e.g. by fire). However some policies may not limit indemnity to circumstances of damage to business premises. In such cases whether the “Business Interruption” indemnity is triggered will depend on the specific word of the policy. The starting point for deciding, whether or not the current pandemic has triggered a “Business Interruption” indemnity are the words of the policy itself. Not only the wording of the “Business Interruption” indemnity need to be scrutinised but also the wording of other provisions. Some policies, for example, will provide indemnity in circumstances where access to business premises is prevented by a reason not related to damage to those premises.

Some policies will specifically cover “Business Interruption” caused by disease. Again, the wording needs to be closely examined because some policies will specifically identify the diseases covered (obviously, no chance of COVID-19 being covered in such policies) whilst other policies may have more general wording and cover “Notifiable Diseases”. That is particularly important because the Government has declared that COVID-19 is a Notifiable Disease.

Unsurprisingly, the pandemic has led to the insurance companies running for cover. In one particular case in London, a PR agency which saw the pandemic coming and specifically insured itself against Business Interruption caused by “an occurrence of a human contagion disease” is involved in a dispute with it’s insurer. The policy was taken out with Hiscox who are reported to have rejected the claim on the policy on the basis that “cover only applies where there is an incident within a one mile radius of the insured’s building”. Hiscox, is also reported to have expressed the view that Business Interruption policies “were not designed to cover the extraordinary circumstances the pandemic will cause”. That case (as the saying goes) “has got legs” which are likely to run all the way to the High Court. Many other cases are also likely to do so with litigation funding brokers reporting an upsurge in applications to Litigation Funders for funds to support claims against insurance companies.

Notwithstanding the obstacles that insurance companies are likely to try to put in your way, between a visit to the shops for essential items and your one hour daily exercise, it might well be worthwhile digging out and dusting down your insurance policy and consulting your broker and/or Solicitor to see if your business is covered for Business Interruption.

Posted on: 22/04/2020

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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