COVID-19 and Business Interruption Insurance

On 5 March 2020, England declared COVID-19 a notifiable disease.  A spokesperson for the

Department of Health and Social Care said:

“This will help companies seek compensation through their insurance policies in the event of any cancellations they may have to make as a result of the spread of the virus.”

Business Interruption (‘BI’) policies could now offer a potential lifeline to businesses to claim losses flowing from COVID-19. This note explores whether typical BI policies will respond.

The nature of the policy

The critical question will concern the nature of the BI policy. The key is likely to be whether cover is limited to physical damage to property or whether cover is broader.

A Property Damage Policy

The reason many BI policies will not cover losses caused by anything other than physical damage is because BI policies are ordinarily purchased as extensions to property damage (‘PD’) policies. Cover under the BI policy is frequently tied to the cover provided under the PD policy by a ‘material damage proviso’.

Insurers will argue that COVID-19 does not harm property, and therefore that BI policies linked to physical property are unlikely to respond to the vast majority of revenue losses. That said, potential claimants may have valid counter-arguments to this line of reasoning. For example, many business premises have been forced to close in order for deep cleans to be undertaken following an employee becoming infected with, or suffering the symptoms of COVID-19. Closure has caused loss of revenue.

Whilst generally, to constitute physical damage, there has to be a physical change in the property, there have been successful arguments that property contaminated or overlaid by a dangerous substance has been damaged. Applying this to COVID-19, there is an argument that when premises are contaminated as above, the ‘material damage proviso’ is satisfied.

Policies Not Contingent On Property Damage

Insurance Policies which do not require property damage might also respond to COVID-19. The most common example is pure business interruption policies. Typically, these policies respond when certain specific circumstances are met. For example, coverage might be triggered where the insured is denied access to its premises because of a government order or because of the occurrence of a notifiable disease within a certain radius of the insured’s premises.  

The application of such triggers will not necessarily be straightforward and careful analysis is necessary. For example, some policies provide an exhaustive definition of notifiable diseases whilst others only provide non-exhaustive examples of relevant diseases. Each type of policy will be interpreted individually. Where non-exhaustive examples of relevant diseases are provided, arguments can be raised by policyholders that COVID-19 can be implied into the list given that it is a "notifiable disease". Where an exhaustive list of notifiable diseases includes SARS, policyholders may also be able to argue that SARS and COVID-19 are such close relatives that coverage for SARS extends to COVID-19. 

Conclusion

There can be no doubt that COVID-19 will have an unprecedented impact upon businesses and insurers. The impact may however not fall evenly. Businesses with identical cover may find that their policies respond differently, depending on precisely how their business interruption arises. Likewise, two businesses that suffer precisely the same interruption will find that cover varies depending upon what they have agreed with their insurers. There are also likely to be issues as to the period of indemnity (if any) and when it concludes. Each case will of course depend on the facts and on the terms agreed.

Policies often contain detailed provisions as to how losses are to be calculated or as to the supporting documents required. Even if such provisions are not expressly provided for within the policy, any insured should consider what evidence they have available to demonstrate the losses sustained and take steps to preserve that evidence very carefully.