Business Interruption Insurance and Covid-19
On Thursday 26 March 2020 Regulations came into force in Scotland imposing widespread restrictions on when people could leave their homes and forced many businesses to close their doors. When they did so, many businesses turned to insurance policies hoping that they would lessen the financial blow, only to be told by insurers that they weren’t covered. So where does that leave them?
An insurance policy is a particular type of contract. It is one where the insurer undertakes to pay a financial sum to the insured on the occurrence of one or more of the specified events that cause loss to the insured. In an insurance contract there will be uncertainty as to whether or not the event will or will not occur. Many contested claims turn on the wording and definitions contained in the particular policy. This may be because the definition of a certain word in a policy is defined narrowly. Alternatively, insurance policies frequently contain defined “exceptions” or “exclusions” where the insurer will not be liable if one of those events occurs.
There are a number of common types of insurance under the head of “business interruption” that many hoped would cover their losses in the current crisis. Unfortunately, the ABI (Association of British Insurers) have stated that the wording of “standard” business interruption insurance is unlikely to extend to global pandemics.
Even where businesses have taken extended policies, such as notifiable disease cover, they may not be covered. Many businesses are finding that the definition of “notifiable disease” within the contract is with reference to specific diseases and would not include COVID-19, it having not been known at the time of the contract.
Another common type of insurance under this head is denial of access cover. This type of cover would usually include “day to day” issues such as loss of trade due to an area being cordoned off e.g. due to a police incident. It may be arguable, depending on the wording of the policy, that this can extend to government mandated denial of access e.g. lockdown quarantine situations. However, this will turn on the wording of the policy.
There are some businesses that have had success. It has been reported that Wimbledon will be paid in excess of £100m under their insurance policy, which included pandemics. Aberdeen Football Club are reported to have also had pandemic insurance, only for it to be ending in April 2020 and that the insurer would not renew.
Business owners should therefore consider their policy carefully and should consider taking further advice. If they do find that they are not covered, there are a range of Government initiatives that they might be able to take advantage of to plug some of the financial gap, including: Furlough and Business Interruption Loan Scheme for SME's.
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