Coronavirus update - insurance implications of unoccupied premises

Commercial property insurance policies typically require business premises to be occupied for the coverage to be effective, or for policyholders to notify the insurer if the property is going to be unoccupied for a period of time. Many policies also contain warranties pertaining to the security of the premises insured, for example the presence of security staff.

Following the recent, Government-mandated closure of certain businesses, and the continued Government guidance that all workers should, if possible, work from home, a significant number of food & drink, retail, leisure and other commercial premises, as well as office buildings, will now be unoccupied.

The Association of British Insurers (ABI) has provided guidance to policyholders in relation to unoccupied premises stating that:

  • "If a business has to temporarily close because of Covid-19, where customers are taking the appropriate steps to mitigate the risk of damage to the property whilst unoccupied, insurers will be flexible around the period of un-occupancy specified on the policy document.
  • Policies will often include conditions that are intended to ensure good practice in protecting buildings of damage caused by the risk of fire, theft and escape of water, which are often increased when a building is empty.  It is important that business owners continue to follow risk management advice and ensure they understand what steps they need to take.
  • Some insurers have also waived requirements for their business customers to immediately notify them of their unoccupied status, (depending on the individual business circumstances).  This should help those customers concentrate on managing their businesses and allow insurers’ call centres to focus on managing the significant number of insurance claims being processed.
  • If there are any specific requirements as part of your insurance contract that you are unable or unlikely to be able to comply with, such as on-site security, speak to your insurer or insurance advisor/broker."

Whilst the guidance provided is helpful, it appears that the approach being adopted varies between different insurers with some stating that they will not enforce provisions relating to unoccupied premises at all, and others merely agreeing to relax/extend the provisions. For example, Zurich has said that "where buildings are temporarily closed due to the COVID-19 outbreak, our Unoccupied Conditions will not apply and we will not be taking any further measures to restrict coverage." By contrast, Allianz has provided the following advice for commercial landlords:

"We usually ask that you notify us if the premises are going to be unoccupied for more than 30 consecutive days for Allianz Commercial standard policy wordings, or 45 days for SME wordings.  We’re now extending this period to 60 days, so you only need to let us know at the end of the 60 day period if the premises will still be unoccupied. During that 60 day period your customer’s existing cover will remain in place."

What should you do?:

  1. Check your policy to see what conditions apply.
  2. Contact your broker/insurer to understand their position on the enforcement/applicability of unoccupied premises conditions during the current period.
  3. Ensure that insofar as possible you are complying with any warranties/conditions pertaining to risks which are increased where buildings are unoccupied (e.g. fire, theft, flood). Zurich, for example, has stated that where its customers are "making appropriate provisions to mitigate their unoccupied risk as a result of Coronavirus, the temporary closure of your building should not prejudice any claim made" thereby leaving the door open for the insurer to argue that adequate mitigation measures were not taken by the policyholder to prevent a claim.
  4. Where you cannot comply with certain provisions, such as the requirement for security staff, seek specific confirmation from your insurer that this will not prejudice your cover.
  5. Continue to keep the situation under review as Government guidance changes; insurers may take a different approach to businesses who are required to be closed (e.g. restaurants) compared to businesses who have chosen to close due to the Government guidance (e.g. offices).  

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Harriet Chopra or Naomi Hall, in Michelmores' Insurance & Reinsurance team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.