23 March 2020

UPDATED GUIDANCE 23/03/20: Coronavirus and Business Interruption Cover (Non-Damage Denial of Access Cover/Extension)

By Richard Graham
Executive Summary

As advised in a previous update, the impact of Covid-19 is global and widespread and therefore was never intended to fall under an insurance policy. We are therefore left with identifying peripheral / ancillary policy extensions that potentially leave the door open for claims to be submitted and accepted.

Whilst the vast majority of insurance policies will not provide cover, there are two potential areas / extensions that need further consideration:

  1. Non-Damage Denial of Access (Closure by a Competent Authority), and
  2. Infectious Disease

This latest update focuses on ‘Non-Damage Denial of Access’ (NDDOA).

Non-Damage Denial of Access (NDDOA)

Where we refer to potential cover being available under NDDOA, we are in fact referring to a very specific type of NDDOA extension. The term ‘NDDOA’ refers to a family of extensions that all relate to providing cover for instances where physical ‘damage’ is not necessary.

In terms of Covid-19, we are concerned with those NDDOA extensions that specifically relate to a competent authority or public authority or statutory authority enforcing closure of premises.

Closure by an Authority

These extensions tend to include a shortened Indemnity Period (typically 3 months, but can be more) and an inner limit.

All wordings are different, but will include four main parts:

  1. Degree of interruption to access – This is where the language used is all important. Some wordings will refer simply to ‘denial of access’, where others will extend further to cover mere ‘interference or hindrance’ regarding access to premises. Clearly the latter is more flexible than the former.
  2. Type of losses to be covered (causation) – Again, the language used is important. Some wordings will refer to covering ‘expenses resulting solely and directly from an interruption’, where others may extend further to cover ‘any losses arising from interruption’.
  3. Level of authority enforcement – All wordings will use language that relates to a mandatory, prohibitive, compulsory, imposed closure by an authority.
  4. Premises / geographical radius – How far the incident which caused the authority to take action can be from the premises for cover to operate.

When overlaying Covid-19 to the wordings of these extensions, we need to be mindful that Insurers did not have a pandemic such as Covid-19 in mind when drafting the policy wording.

  1. Degree of interruption to access – Where there is a mandatory closure, it is clear that use of the premises is affected. With a non-mandatory closure (not directly ordered by the UK Government but merely recommended) there is an argument that the premises can still be accessed. With any closure, we still believe that certain Insurers may look very closely at interpretation of ‘denial’, ‘hindrance’ and ‘interruption’ to ascertain if these tests have been met.
  2. Type of losses to be covered – This is an area that we still have some fear over, despite the mandatory closure instruction…..that Insurers deem that any losses are not solely and directly arising from the closure, but more from a lack of visitors (as an example), as can be evidenced in the weeks leading up to closure.
  3. Level of authority enforcement – We believe that as of 20 March 2020, this test has been met for Cafes, Pubs, Restaurants and Gyms. Clearly, this is the start of enhanced measures from the UK Government and we expect further mandatory closure orders for additional sectors / industries.
  4. Premises / geographical radius – Some wordings only cover an outbreak occurring at a client’s premises. We may well see Insurers still take issue on this.

Other issues include:

  • Exclusions – Supporting the principle that insurance was never intended to cover global issues such as Covid-19, some NDDOA extensions specifically include an Exclusion that excludes “any action taken in controlling, preventing or suppressing the spread of any disease”.
  • Common Law (Wide Area Damage) – This will need to be considered on a case-by-case basis but there is strong argument to suggest that Orient Express Hotels Ltd v Generali could be used by Insurers to decline indemnity (i.e. would the financial impact to Clients be the same without closure to their premises due to the wider and global effect of Covid-19?).
Update – 20 March 2020

The UK Government confirmed on 20 March 2020 that they are ordering the closure of cafes, pubs, restaurants and gyms. We believe that this will meet the requirements of point 3 above in respect to most policy wordings.

Notification Guidelines (Cafes, Pubs, Restaurants and Gyms)

In light of the announcement from the UK Government on 20 March, Cafes, Pubs, Restaurants and Gyms are now high priority for consideration of notification. Other sectors / industries that have been ordered to close fall into this category:

  1. Is there a relevant extension which relates to ‘closure by an authority’?
  2. There are not any obvious Exclusions (as referred to above)?

If Yes to the above, we should proceed to notify into Insurers. Please speak to your usual Aston Lark contact to discuss further.

Notification Guidelines (All Others)

In the absence of a mandatory or compulsory order from the UK Government for a business to close, it is unlikely that we satisfy the test under point 3 above. Nonetheless:

  1. Has the business closed as a result of an outbreak of Covid-19 on the premises?
  2. Is there a relevant extension which relates to ‘closure by an authority’?
  3. There are not any obvious Exclusions (as referred to above)?

If Yes to the above, please speak to your usual Aston Lark contact to discuss further.

Please refer to our matrix for a summary of the above.

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