6th March 2020

Coronavirus and Business Interruption

By Aston Lark
Empty factory

The UK Government has now classified Coronavirus, also known as COVID-19, as a 'Notifiable Disease'. We have looked at how this may impact businesses and how insurers and related insurance policies are likely to respond.  

Many companies in the UK are now beginning to worry about the possible financial impact of the Coronavirus on their business. Whether it be as a result of supply chain problems relating to products and materials usually imported from China, or fears that they may have to close their business premises if there is an outbreak of the virus, businesses are now facing challenges they have never faced before. 

Whilst the UK Government has now classified Covid-19 as a Notifiable Disease and this is a very positive step, this will not automatically mean that insurance policies will provide cover where previously they didn't.   Business Interruption insurance is primarily dependent on there being physical damage (for example, by fire or flood) to either a policyholder’s property or, by extension, to that of key suppliers or customers.  In each case, what is covered is the loss of revenue or the increased costs a business incurs as  a consequence of the damage.  Therefore, in the case of UK businesses which suffer as a result of supply chain problems with overseas suppliers, cover will only be triggered if the supply has been interrupted as a consequence of physical damage.  The closure of a factory as a result of Coronavirus would not, therefore, qualify.

A lot of Business Interruption insurances provide cover for some instances of interruption which is not a consequence of physical damage at the insured premises or elsewhere.  An example is interruption of, or interference with, a business as a consequence of the outbreak of certain diseases.  In the vast majority of cases the diseases for which the Insurer is providing cover against are listed and in some cases, but in no means all, the list will be titled 'Notifiable Diseases'.

Prior to the current Coronavirus outbreak, even where the diseases for which an insurer is providing cover has been titled 'Notifiable Diseases', it has been the case that the list is not identical to the official UK Government list.  Therefore, whilst the government has extended the official list to include Covid-19, it will not mean that UK insurers will automatically do the same.   Not all Insurers have yet to declare their position but a number have and, to date, the stance has been that they will not be extending the cover they currently provide to include the new disease. 

That said, policy wordings do vary and some do not limit cover to specific or named diseases.  In these cases there may be cover available for loss of income, extra expense, crisis response, cost of decontamination and sanitisation etc. but cover may still be subject to certain limitations.  Cover might extend to outbreaks of a disease away from the insured premises but, invariably, this will be limited to within a narrow radius (for example,  10 miles).  A reduction in a business’ trade simply resulting from an economic downturn, such as people not wishing to travel or to dine out, would not be the same as an actual outbreak of the disease nearby, and therefore would not be covered.  

Employers Liability

From a liability perspective, in particular Employers Liability, there could be some exposure as specified diseases are not excluded. However, the insured would have to be proven negligent in some way before any such claim could be considered under the policy. For example, if an employer permitted staff to travel to areas which are against World Health Organisation (WHO) or Government (Foreign & Commonwealth Office) advice.

Summary

Whilst the above position may appear less than positive, it is consistent with the fundamental principles of insurance – what can be insured and what can’t be. Insurance is effective, available and affordable due to insurers being able to accurately assess their liability and consequently price risks in a way that ensures it remains viable for all.

Global and widespread issues such as Coronavirus and war are too large for the insurance industry to bear. Doing so would cause insurance premiums to increase to unprecedented, unviable and unaffordable levels.

The current situation is an unfamiliar one to all of us, and that includes businesses and insurers. We would recommend you speak to your usual Aston Lark contact if you have any concerns or questions regarding your current or future insurance arrangements. Alternatively, call 0207 543 2800.