In our previous article, we discussed business interruption ("BI") insurance coverage. Typically, BI policy wordings cover losses arising from "closing of the premises by order of a public authority as a result of an outbreak of a notifiable disease". Such wordings only cover situations where there is a closing order from a public authority. COVID-19 was made a notifiable disease in Hong Kong on 7 January 2020. In view of the increase in COVID-19 confirmed cases in Hong Kong, the Government announced its first closing order on 27 March 2020.
On 27 March 2020, the Chief Executive in Council gazetted the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation (the "Regulation"). Under the Regulation, the Secretary for Food and Health (the "Secretary") has the power to require catering businesses to cease operations or close any part of their premises. The Secretary also has the power to order for the closure of scheduled premises under the Regulation. On the same day, the Secretary ordered for the closure of amusement game centres, bathhouses, fitness centres, places of amusement, places of entertainment, and party rooms. Subsequently, on 1 April and 2 April 2020, the Secretary extended the closing order to nightclubs, karaoke establishments, mah-jong premises, and premises mainly or exclusively supplying intoxicating liquors, respectively.
BI insurance coverage may vary between policies. Traditional BI only covers "material physical damage", which means the business premises must suffer physical damage, for example losses arising from fire, flood, or other natural disasters. The spread of COVID-19 may not result in actual physical damage to the property. However, some English case law found that changes on a miniscule scale, for example sub-molecular changes caused by fire or change in pigments in paint, amounted to physical damage. As COVID-19 spreads, there are news stories of infected employees attending work before finding out they have been infected. Such workplaces often are evacuated and deep-cleaned because of the contamination. Insureds in these cases may be able to argue that their workplaces being contaminated amounts to physical damage.
For both physical damage and closing order BI coverage, another issue is the extent of liability of the insurer. Any interruption suffered by a business must be recorded so as to facilitate the quantification of losses. In Hong Kong, some businesses have been significantly affected by the anti-government protests last year, and their problems have been compounded by the COVID-19 outbreak. Demonstrating losses as a result of closure orders therefore will be difficult, aside from the issue with coverage under the policy.
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