Coronavirus Pandemic – is my business protected by insurance?
With the World Health Organisation yesterday declaring the COVID-19 outbreak to be a pandemic, it seems increasingly likely that the UK government will introduce further measures designed to slow the spread of the novel coronavirus (COVID-19), pushing the peak into the summer months when the NHS will be better prepared to cope with the increased pressure. Such measures could include the closure of schools, cancellation of large sporting/music and other events, and asking millions of public and private sector employees to work from home. Yesterday it was announced that the Italian government had ordered the closure of all shops with the exception of pharmacies and food stores. Football and Six Nations rugby matches have already been cancelled, and the Republic of Ireland has just announced the closure of their schools and colleges.
With these sorts of measures looking increasingly likely, businesses across the UK will be considering the impact on their operations, revenue and profits; analysing their contractual arrangements to understand their rights and obligations in the event of a force majeure and checking whether their insurance will protect them in the event of irrecoverable financial loss.
There are several types of insurance cover which might respond to protect a business facing losses as a result of the outbreak; in this article we have summarised the key ones. We strongly advise businesses who think they might be affected to speak to their brokers now, if they have not already done so, to see what protection they may have and to ensure that timely and proper notice of any claims is given.
Business interruption insurance
Typically found in property policies, but sometimes found in general commercial policies as well, business interruption insurance provides cover for loss of income caused by an unexpected interruption that is beyond your control. On the face of it, therefore, this type of insurance would seem to cover precisely this scenario. However, in most cases business interruption cover will only kick in where there has been some other, covered loss such as physical damage to property by an insured peril (e.g. a fire or a flood).
With that said, it is entirely possible for policies to contain stand-alone business interruption cover or separate extensions in respect of, amongst other things, pandemic (other terms may be used such as "epidemic", "notifiable disease", "infectious disease" or "communicable disease"). Such extensions may provide some protection, although they are often subject to much lower limits of liability.
Companies involved in the events sector may well have bespoke insurance policies covering cancellation due to circumstances outside of their control. These policies are highly likely to provide cover for cancellations arising as a result of a pandemic/outbreak of infectious disease. Nevertheless, policies can be drafted very narrowly, requiring the relevant outbreak to occur within a specified physical distance or number of days of the event. Such policies also typically contain various exclusions in respect of specific diseases which may be drafted broadly enough to cover COVID-19.
Trade disruption insurance
Our Commercial Team recently considered the potential for COVID-19 to cause global disruption to supply chains. The potential for serious financial losses as a result of disruption in trade is enormous. Specific trade disruption insurance is designed to cover businesses for losses sustained as a result of disruptions caused by the closure of ports/airports and the imposition of quarantine areas, such as those that have been imposed in China, Italy and elsewhere. Companies with this type of insurance should have already notified their insurers of circumstances likely to give rise to claims.
Trade credit insurance
Trade credit insurance provides cover to businesses whose customers fail to pay their debts in a timely manner or at all. As the impact of COVID-19 impacts global markets, giving rise to fears of recession and increased insolvencies, businesses with trade credit insurance will need to look at whether they are protected in the event of customer defaults/insolvencies.
1. Notification: any business which considers that it may be at risk of financial loss as a result of COVID-19 should be considering notifying its insurers now of potential claims. Notification provisions often require "immediate" notice as soon as the business becomes aware of any circumstance which "might" give rise to a loss. They can also be drafted as conditions precedent, meaning failure to comply under English law will bar recovery down the line.
2. Renewal: the COVID-19 pandemic looks set to last for at least the coming months and so is likely to be a feature in many company's insurance renewal processes. Where relevant insurance cover exists, policyholders should be on the look-out for additional exclusions being added to their policies, and in terms of giving a fair presentation of risk, specifically supply chain risks, the insured's "reasonable searches" to audit trail and fully disclose such risks will be critical to get right.
Michelmores' Insurance and Reinsurance team can assist companies by reviewing policy wordings, advising on the scope of coverage and drafting notifications. If you would like to discuss your insurance coverage with a member of our team, please contact Harriet Chopra or Garbhan Shanks.