Covid 19: Will your business interruption insurance apply?

From 29 February 2020 Covid-19 has been listed as a notifiable disease in Northern Ireland. Since then, the severe impact of Covid-19 has been felt by businesses across Northern Ireland as they deal with the government and public health guidelines, most notably in the hospitality, retail and tourism sectors.

Following a press conference on 16 March 2020, Boris Johnston urged the public to avoid all “non-essential” social contact. This guidance has had a significant impact on businesses, who should now examine their business interruption insurance policy wording to see if protection is offered within its policy at this unprecedented time.

Business interruption insurance

Business interruption insurance is a type of insurance which covers the loss of income that a business suffers as a result of an incident e.g. fire or flood with some policies offering extensions to cover “notifiable disease”. While each policy of insurance should be reviewed to confirm if there is coverage for Covid-19 disruption, the following clauses are of relevance:

  • What damage is covered: Business interruption policy wording may include that only losses arising from physical damage to the insured’s property will be covered. While it is likely premises will have to be closed for a deep clean should an actual or suspected case of Covid-19 be identified, an insurance policy is unlikely to provide cover in the absence of “actual” or “physical” damage to the premises.
  • Denial of access: Some policies may include a denial of access extension which would cover any action by the police or a statutory authority which prevents or hinders access to the premises, without the need to demonstrate physical damage. If this is included in the policy, it may provide some protection in the case of a mandatory closure of a business by the NI Assembly or UK Government.
  • Infectious diseases: Coverage for infectious disease is an extension which may be included in business interruption policies whereby physical damage does not need to have been suffered in order to obtain coverage. This might allow the insured to recover consequential losses from a distribution arising from an infectious disease e.g. loss of trade, loss of staff and loss of rent. However, where this extension is included, most policies have defined which “notifiable diseases” are covered. Therefore, if the policy was taken out prior to December 2019, it is unlikely Covid-19 will be expressly included. If the policy defines notifiable diseases in line with public health legislation, any losses arising from Covid-19 are not retrospective and will only be covered from the point it officially became a notifiable disease in the relevant jurisdiction.
  • Suppliers and customers- failure to supply:  There are increasing problems with supply chains as the virus spreads across Europe.  It is common in such insurance policies to provide cover in respect of distribution to the supply chain where there is physical damage at the premises of customers or suppliers. In the absence of physical damage, this extension is unlikely to respond in circumstances where manufacturing and supply chain operations are impacted by Covid-19.

From an insurance perspective, coverage will be dictated by the terms and conditions of the insurance policy. While the Association of British Insurers have said that it is unlikely that business interruption insurance will cover Covid-19, the FCA who is the regulatory body for insurers have made clear that they expect “insurance firms to recognise this and treat their customers fairly, recognising the circumstances customers may find themselves in. We would not expect to see a customer’s ability to claim affected by circumstances over which they have little control”. Therefore, it is important that any policy in place is reviewed to identify if coverage might be available to assist businesses at these unprecedent times. Our experienced insurance coverage lawyers are here to help our clients navigate through these challenge times and identify any financial assistance which may be available under its insurance policies.

 

Government assistance

If you do not have business interruption insurance to deal with these unique circumstances, the Northern Irish Assembly has offered businesses financial assistance packages. Whilst details will no doubt be expanded upon in the coming days, the headlines appear to be as follows:

  • Coronvirus Business Interruption Loan Scheme offering SMEs access to bank lending up to £5million with first 6 months interest free.
  • £10,000 grant to all small business who are eligible for small business rate relief scheme.
  • £25,000 grant specifically for companies in the hospitability, tourism and retail sectors with a rateable value from £15,000 to £51,000.
  • 3 month rates holiday for all business ratepayers, excluding public sector and utilities, giving a 25% discount on the annual rate bill for business ratepayers.

While we can’t advise on financial assistance being provided we would encourage clients to explore these options with additional guidance available from www.nibusinessinfo.co.uk and the Department for the Economy.

 

If you are currently reviewing your insurance position please do not hesitate to contact Ellen Forester ellen.forester@tughans.com or Kathy McGillie  kathy.mcgillie@tughans.com for assistance.

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.