As businesses assess the impact of COVID-19, they will be examining insurance policies to determine if there is cover for losses. In this article, we describe the area of business interruption cover. As a separate article, we describe other forms of insurance where COVID-19 issues may arise. The two articles can be read in conjunction to give an overview across all main insurance areas.
Business Interruption Insurance and Other Forms of Policy with Interruption Elements
COVID-19 claims may be made under various commercial insurance policies. An area of particular focus will be policies providing business interruption and contingent business interruption cover. Business interruption insurance is intended to protect businesses against income losses sustained as a result of disruptions to their operations. Contingent business interruption cover, similarly, provides insurance for financial losses resulting from disruptions to a business’s customers or suppliers.
The classification of ‘damage’ will be a crucial determination in the application of business interruption insurance. Any losses claimed by an insured party must emanate from damage to business property and related elements. It will therefore usually require a permanent “physical” event having taken place and the temporal nature of the effect of a virus may not meet such a criterion.
Other types of policy that may give rise to cover include standard property insurance policies which, generally speaking, may give cover for losses caused by communicable or infectious diseases without requiring physical damage to the insured property. This type of insurance is generally held by policyholders in the healthcare and hospitality industry. Businesses, particularly those in the travel or hospitality sectors, may potentially recover under a Commercial General Liability policy. For example, this might be if there are claims against a business by guests alleging that a business failed to take reasonable care to warn about or prevent the spread of the virus.
A likely area of contention will be if a business interruption policy is triggered by a closure direction from the government. Although it will depend on the wording in each specific policy, and there can be key variances in how policies are drafted, our view is that a typical business interruption policy is unlikely to extend to extraordinary preventative measures. This could, for instance, include a decision to close a premises due to the need to implement “social distancing”.
Of relevance also will be policies tailored to specific industry sectors. Policies may have extensions to standard cover as “add-ons”. This, in a minority of cases, may mean an extension specifically for cover relating to diseases under a business interruption policy. Historically, this type of clause would envisage cover for a disease which broke out due to circumstances relating to the business premises, as opposed to externally manifested diseases. In theory however, the cover may extend to COVID-19, though the position is currently unclear. It would typically be necessary also to show a denial of access by the public authorities in order to claim.
How William Fry can help
For more information on the business interruption insurance and the impact of COVID-19 on such policies, please contact a member of our Insurance Team or your usual William Fry contact.
Contributed by Shannon O’Neill