Most businesses have a commercial combined insurance policy in place. The primary areas that may provide cover for losses caused directly or indirectly by coronavirus are business interruption and event cancellation.
Business interruption
Business interruption cover is normally for an interruption to an insured’s business as a result of physical damage to insured property. Physical damage is generally a required as a trigger for this type of cover. It is doubtful that coronavirus damages property so business interruption will not provide cover for losses unless a specific non-damage business interruption extension is included on the policy.
Non-damage business interruption extensions are generally notifiable or infectious disease extensions. The scope of infectious disease cover tends to be tightly drafted. Some policies may not extend to new diseases such as coronavirus but others provide cover for losses caused by any notifiable disease whilst others specify diseases covered. Covid-19 became notifiable in Scotland on 22 February 2020 This is important as some policies define notifiable disease with reference to public health legislation or the actions of public bodies.
Notifiable disease extensions can provide cover for loss in consequence of occurrence of a notifiable disease at the premises while other policies provide cover for any occurrence of a notifiable disease within a radius of 25 miles from the premises. There are likely to be difficulties around proving the existence of the virus at the premises, however, it may be possible to establish the occurrence of a notifiable disease within the specified radius.
Where cover does exist, there are likely to be arguments over the extent of losses caused by the notifiable disease as opposed to the impact of the virus on the economy and any absence of customers. Insurers may argue that, even if businesses had been able to continue to operate, custom would be significantly reduced in the circumstances.
Event cancellation cover
Event cancellation cover provides cover for losses caused directly by the cancellation of a specific event as a result of a specified peril. Event cancellation policies may not provide or can exclude cover for cancellation by infectious disease.
Comments
The insurance industry has issued a number of public statements that they consider standard business insurance policies are unlikely to cover the effects of Covid-19.
There is the potential for cover to be available under certain policies and in certain circumstances although there are still likely to be arguments in relation to the extent of loss that can be recovered from insurers
We recommend that businesses take independent advice in relation to the extent of the insurance cover they have in place.
For further information contact Callum Anderson by Email: canderson@lemac.co.uk or on 0141 307 2315
