Many businesses might expect to be covered by their existing insurance policies for crises such as the coronavirus (COVID-19) pandemic. However, cover for these sorts of events can often be quite limited. Businesses should be looking closely at the wording of their policies, preferably with their insurance broker and their lawyer, to understand exactly what cover they have and whether they can bring an insurance claim for the impact that COVID-19 has had/may still have on their business.
In this article, we look at the most common types of insurance policies, how they might respond to COVID-19 claims and what businesses should be doing now to check whether they are covered.
Cover for liabilities to third parties
Employer liability insurance
In the UK, employers must take out employers' liability insurance of at least £5 million each and every occurrence. This will provide employers with cover for claims by employees for bodily injury, which includes diseases such as COVID-19. It may become relevant if an employee brings a claim because they believe that they were exposed to the virus at work due to the negligence of their employer.
Public liability insurance
Most UK businesses will also have public liability cover. This provides them with cover in the event that a third party (not an employee) brings a claim against them for personal injury or property damage, and in some cases financial loss. It would be relevant, for example if a customer alleged that they became ill due to inadequate hygiene standards at an establishment. Bodily injury is usually defined in these policies as including disease but there may be limited cover for emotional distress if, for example, a customer alleged that they were exposed to the virus but were later shown to have tested negative.
Typically public liability policies also exclude cover for contamination or pollution. There may be some debate as to whether this might include COVID-19. However, these exclusions are generally designed to exclude cover for gradual pollution escaping from the premises rather than presence of a disease or virus on the premises themselves. On this basis, it seems unlikely that this would operate to exclude cover in most circumstances.
Directors' & officers' liability insurance
Whilst less of an immediate concern, businesses may also want to check that they have appropriate directors' and officers' liability insurance cover in place. It is possible that decisions that are being made now by senior management are criticised later down the line by regulators or lead to claims by shareholders, investors or insolvency practitioners. A directors' and officers' policy will provide the individual director with cover in relation to those claims, and also give the business cover in the event that it is required to indemnify its directors.
Cover for business losses
Property damage and business interruption insurance
The immediate concern for businesses is the impact that COVID-19 is having on their ability to operate or trade as normal. Many will assume that their business interruption policy will provide cover for this. They are likely to be disappointed.
Unless there is a relevant extension to cover, a standard business interruption policy will typically only provide cover for losses resulting from physical damage to the premises. Even if it can be shown that premises were closed down due to the tangible presence of the COVID-19 virus on the premises (and, of course, most premises will not have been closed down for that reason) it is unlikely, due to the fact that the virus is only present on surfaces temporarily, that this will be sufficient to establish permanent loss or damage to the premises themselves.
There are two possible extensions to cover that may be relevant, but these are often sub-limited or contain higher excesses than are typically found under the main policy wording.
Notifiable or communicable disease
Some policies provide cover for business interruption losses where it has been necessary to close down the insured premises as a result of a notifiable or communicable disease. The extent to which a business is covered depends entirely on the policy wording, and so it is important to check this.
Often these policies will only provide cover where someone is found to have contracted the disease at or within a certain distance of the premises. It may, therefore, be necessary to check whether there any confirmed cases of COVID-19 within that area. Other policies may require closure to have been mandated by a competent authority, which, following a statement by the Prime Minister on 23 March, will now apply to many businesses as the country enters lockdown.
Businesses should also check which diseases are covered. Some policies will only cover certain specified diseases which are then listed in the policy. Given that COVID-19 is a new virus, however, this is unlikely to be covered. Other policies will provide cover for notifiable diseases. This now includes COVID-19 but only since 5 March 2020.
Denial of access cover
Another potentially helpful extension to cover is denial of access. This provides cover for business interruption losses where a business is prevented from accessing its premises by order of a competent authority usually in conjunction with a threat to public health or danger to life. Businesses need to check the wording carefully as this cover is usually drafted so as to respond to more localised events (such as a terrorist attack) rather than a global pandemic.
The tricky part...
If a business manages to get a business interruption claim off the ground, it must then quantify its loss. This presents its own difficulties.
The decision in Orient-Express Hotels Ltd v Assicurazioni Generali SA established the correct approach for assessing business interruption losses in these circumstances. The case concerned a business interruption claim by a hotel that was damaged as a result of Hurricane Katrina in 2005. The hotel was required to show that "but for" the damage to the hotel itself, it would not have suffered the same loss. It was unable to do so because even if the damage had not occurred, it would have suffered the same business interruption losses regardless due to the devastation to the surrounding area.
Applying this to COVID-19, a business would have to establish that it had suffered a loss due to the closing down of its premises, and not as a result of the widespread impact of the COVID-19 virus more generally. In other words, it would need to compare its actual financial position to the position that it would have been in, had it remained open whilst the population at large was social-distancing. In this way, it can be seen that the loss is, therefore, likely to be quite limited.
A cancellation insurance policy usually covers the costs of big events like conferences being cancelled. Once again, businesses with this type of insurance should look very carefully at their policy wording. Cover is usually only triggered when cancellation is beyond the policyholder's control and so will typically only respond when cancellation became necessary because of a decision by the relevant competent authority to impose a quarantine, restrict travel or ban public gatherings as a consequence of COVID-19. Furthermore, these policies often exclude cover for communicable disease.
Business travel cover policy
In a similar way, a travel insurance policy is only likely to cover the costs of cancelling an overseas trip once there has been FCO guidance against employees travelling to or from the countries in question. It is also important to bear in mind, of course, that when employees are travelling against government advice, they are unlikely to be covered.
What to do now
Businesses will obviously have a number of competing priorities in the immediate aftermath of COVID-19 but in order to make sure that they are protected, they need to be digging their policies out now and reading them closely. Speak to your insurance broker and, if necessary get specialist legal advice on whether you are covered for incidents relating to COVID-19. If you think you might be covered, you should make a notification of claim to your insurer making sure that you follow the notification procedure in your policy. If you are not covered, and you may not be, consider whether you are eligible for any of the government-backed schemes - businesses may find that these are a good practical alternative to insurance.
Keep good records and if you are planning to make a business interruption claim, check how loss is calculated for the purposes of your policy and start collating the relevant information now which could help support your claim. Early quantification of your claim may convince your insurer to make an interim payment, particularly if your loss is likely to far exceed the level of any available limit of indemnity. This may be critical in mitigating the more immediate impact of the crisis on your business.
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