5 March 2020
Following discussions with clients about coronavirus and acknowledging growing concern regarding how the spread of the virus might affect their businesses, we decided to put together a coronavirus guide from a business insurance perspective. Below you will find information on what kind of protection particular business insurance programmes may offer against losses arising from coronavirus.
Despite stringent containment and quarantine measures, coronavirus (COVID-19), continues to spread across the world with 87 recorded cases in the UK at the time of writing. Whilst the death toll within China is still relatively low, with 3,000 fatalities to date, this epidemic is already far in excess of the SARS outbreak of 2003.
Leaving aside coronavirus' human cost, the economic impact is significant, with major brands including Starbucks, Ikea and Apple, closing stores throughout China and manufacturing in Wuhan remains at a standstill. Globally, the economic impact is growing, with disruption to supply chains, a drop in consumer demand and sectors such as travel and energy experiencing significant downturns as a result of the virus.
Many businesses are now trying to understand how their business insurance programmes may, or may not, provide protection in the event that they are affected by this outbreak.
At the outset, it is important to note that every policy wording will respond differently to different scenarios and it is impossible to provide a comprehensive response for every eventuality. Specific advice on the basis of your own policy wording should be sought in all circumstances.
This note considers potential policy response to policies that are written in the UK and are subject to UK Law only.
How is policy cover triggered?
In a property damage or business interruption policy, damage caused by an insured peril at an insured business location is typically the trigger for cover to operate.
Straight away, this means that policies written on a specified perils basis are very unlikely to provide any cover at all as disease (contamination) is not an insured peril.
Policies written on a Commercial All Risks basis are realistically the only ones likely to offer any kind of cover.
What does English Law class as "damage"?
Under English law, any adverse physical change to property which impairs its use or value can count as damage. The change need not be visible or permanent.
If premises are confirmed (as opposed to suspected) to be contaminated by the presence of coronavirus on surfaces, such that they require decontamination before the premises can be re-occupied, this is likely to be regarded as damage by an English Court.
However, the fear of future possible damage will not be sufficient.
This is likely to mean that if your premises are confirmed as being contaminated by Coronavirus then policy cover for damage may operate to cover the costs of decontamination.
Business Interruption (BI)
Once damage can be established then it is possible that BI losses (loss of profits) resulting from that particular damage could be covered.
So, in the scenario above, loss of profits resulting from the premises being shut down whilst they were being decontaminated, may also be covered.
Some policies may have supply chain extensions that will almost always require triggering damage at the third party premises of a type that would have been covered by your own policy. This means that if your policy is written on a specified perils basis, then cover under your supply chain extensions is unlikely to trigger as there is no cover under your own policy.
What happens if there is no “damage” at my premises?
If no damage can be identified either at the insured premises or those of any customer / supplier covered by a supply chain extension, then the only other potential source of cover would be under a Notifiable Disease or Denial of Access extension.
These clauses are not widespread and are generally tightly worded (and are by no means standardised) and have relatively low sub-limits and/or waiting periods which restrict the scope of cover.
Notifiable Disease – The UK government classified Coronavirus as a notifiable disease on 4 March 2020.
Most policy wordings contain a specific list of notifiable diseases that are covered.
Even though Coronavirus is now notifiable, It should be noted that insurers are under no legal obligation to add it to their list of notifiable diseases under their policy wording, and therefore are not legally liable to provide cover if you have the extension under your policy.
It is also true to say that any losses incurred prior to Coronavirus being classed as a notifiable disease are not covered.
Denial of Access – This cover relates to the inability of a business to operate due to you being unable to access your premises following loss or damage within the vicinity of your own premises. The definition of vicinity will vary under different policies.
Other potential coverage issues - policy exclusions.
Typical policy exclusions of particular relevance to coronavirus claims include losses arising from contamination (particularly if the exclusion refers to harmful pathogens) and communicable diseases. In the event your policy includes such exclusions it is highly unlikely that you will have cover.
This situation is developing on a regular basis and is clearly of increasing concern to all businesses and we will keep you updated as circumstances change.
It is clear that every situation, policy wording and claims scenario will be different for each client and we will happily discuss your particular circumstances whenever your need arises. We are hopeful that insurers will bring more clarity to their response in the coming days and weeks.
In the meantime, we are here to help so please don’t hesitate to contact us.