The Coronavirus and the consequential action by Chinese authorities to quarantine areas and close factories is causing significant disruption to supply chain logistics for businesses all over the world.
Many Australian policyholders are asking: can the adverse financial consequences of the interruption be claimed on insurance? The short answer is typically not, but we wonder if it is possible that a combination of optional extensions to Industrial Special Risks (ISR)/business interruption insurance policies may cover the losses.
Cover for business interruption
Traditionally, business interruption cover needs to be triggered by (1) 'Damage' at (2) the insured premises. Obviously, the Coronavirus does not cause any damage, nor does it occur at the (Australian) policyholder's premises.
However, a combination of optional endorsements which are sometimes added to ISR policies may work in combination to trigger a business interruption claim where the Coronavirus has resulted in the closure of a supplier's premises. The endorsements which would be required would look like these:
Infectious disease murder and closure
The term "Damage" under Section 2 of the Policy is extended to include loss directly resulting from interruption of or interference with the business carried on by the Insured at the premises in consequence of:
- Closing of the whole or part of the premises by order of a Public Authority as a result of an outbreak of a notifiable human infectious or contagious disease; ... [emphasis added]
Unspecified customers' and / or suppliers' premises
Loss resulting from interruption of or interference with the Business in consequence of Damage to property at premises anywhere in the world, of any supplier or customer (or in the vicinity of such premises which prevents or hinders the use of or access to such premises) shall be deemed to be loss resulting from Damage to Property used by the Original Named Insured at the Premises for the purpose of the Business [emphasis added]
The combined effect of the above is that:
- 'Damage' which happens at a (Chinese) supplier's premises is deemed to be "Damage" happening at the (Australian) policyholder's premises; and
- the closure of the premises by authorities is deemed to be "Damage" triggering the Section 2 business interruption cover, despite the absence of physical damage;
- so by a combination of the endorsements you can argue that the closure of a supplier's premises due to the Coronavirus is deemed to be "Damage" at the (Australian) policyholder's premises which triggers the business interruption cover.
Obviously, the specifics of each policyholder's coverage and whether the relevant optional endorsements are available is a matter for individual consideration. This article contains general advice only.