Business Interruption

From 5th Mar 20, COVID-19 was registered as a notifiable disease in the UK.

“We want to ensure any steps taken to protect the public during the COVID-19 outbreak are proportionate and do not come at an unnecessary social or economic cost”…….. “To mitigate the impact on businesses, we will register COVID-19 as a notifiable disease. 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.” BBC report citing the Department of Health and Social Care.

Insurers are braced for claims for business interruption but many businesses may not be covered.

You must make informed decisions about the Pandemic’s impact on your business. I hope that this blog is useful and stimulates your research for your business decisions.

So, can I claim and when?

Business Interruption cover often appears in many policies as an included cover or an add-on but is, unfortunately, not straight forward to understand or apply. In theory, the cover should put you back into the financial position you would have been in but for the impact of the ‘trigger’ covered under your policy.

Business Interruption cover is not standardised and so you will have to carefully check the wording in your insurance policy to identify the ‘triggers’ and the extent of cover.

Most business interruption cover has its starting point as damage to property, or a workplace, that adversely impacts your activities. So, if your business’ turnover is impacted by loss of your staff through illness this may not be insured. But, there are several scenarios to trigger a claim.

Potential Trigger scenarios

Given the current crisis we review some of these scenarios below:

• If a competent authority (Local Government, Public Health etc) orders you to stop business for containment or imposes a curfew or restricts access to your business (quarantine area for example) then this scenario is often (but not always) covered in policies under headings such as “Denial of Access”.
• For some businesses where supply chains are critical then business interruption cover to damage suffered through your supply chains interruption may be also covered. These extensions are more usually found in policies for major companies.

A property damage claim may be possible where decontamination causes closure and constitute temporary “damage” for the duration of the cleansing process. A Business Interruption claim will only be possible if you have no choice and lose the use of your premises. Closure and the loss of revenue will only trigger a claim in this case if it is by order of a competent authority – usually government but also police or fire brigade.

With infectious diseases – the key is the definitions used to trigger cover. A business interruption for infectious diseases clause may:

• Adopt whatever the government announces as a notifiable disease; or,
• May have a list (possibly/probably out of date) of conditions or diseases that are covered. As the policy is a contract, the insurer may well take the approach that ‘If it isn’t listed, then you can’t claim’.

What can I claim?

As with previous contagious outbreaks like SARS, the level of compensation under cover for a notifiable disease is likely to be determined by the loss suffered from when the disease became notifiable. Cover does not normally extend to any business impact before! In the case of COVID-19 the difference between your financial position as it could have been foreseen up to and including 4th Mar and the position after 5th Mar.

The value of the compensation under business interruption covers is also complicated by the way the claim is calculated. One method is loss of net income plus continued costs of lost sales. There are a number of other approaches and this requires specialist accountancy advice and support. If the accounting  approach is not specified in the policy wording there can be scope for your accountants to argue over what is the better approach for your business as the outcomes could be very different.

Summary

Business interruption claims are complex and policy wordings often lead to different interpretations, expectations and contested claims.

As at 12 Mar, Government advice was not to close if your workplace or staff are contaminated. Unless this advice changes, or local authorities put in place restrictions which impact your business, the value or likelihood of a successful claim will be determined by your choices.

 

IT IS VITAL TO:

LOOK AT YOUR POLICY WORDING CAREFULLY

KEEP up to date with central government and the authorities advice before making any ‘big’ business continuity decisions

COVID-19 Information for the Public

and,

SEEK ADVICE from your insurer.

 

Where can I get more information about what to do?

The government website and Public Health England have frequently updated practical advice which is useful and balanced. The following links may be of interest to you and your business:

• Our previous blog on small businesses and coronavirus;
• What to do when individuals in the workplace have had contact with a confirmed case of COVID-19
• Cleaning offices and public spaces where there-are suspected or confirmed cases of COVID-19

 

Links and some information is taken from Government Sources under OGL.

Author: Mike Jenkins – Mike was a member of the Governments Bird Flu resilience planning committee.