By Ted Powell and Katie Byrne
The coronavirus pandemic is having a significant impact on businesses across all industries. Businesses have been forced to close premises, send staff home to work, cancel events and travel plans and face an uncertain economic climate. In these extraordinary times, businesses will have to look at how they can best recover those losses. The Government will provide some support but the anticipated loss for business will far outweigh the support available. Will the insurance industry pay out? Insurance could provide vital support for businesses if policies provide cover. We consider some key questions when determining whether your business is covered.
Business interruption loss
Is COVID-19 expressly covered?
Business interruption insurance is usually designed to cover the financial losses following physical damage to a building. However, it is possible that it will also cover financial losses resulting from any insured event, including disease. As with any policy, the devil is in the detail and some insurance policies will list the infectious diseases which the insurance will specifically indemnify. It is unlikely that COVID-19 will be specifically listed as an indemnified disease as its existence would probably have been unknown when the policy was taken out.
However, could COVID-19 fall within the definition of another listed infectious disease? Following the outbreak of Severe Acute Respiratory Syndrome (“SARS”) in 2003, many policies listed SARS as an “infectious disease”. The World Health Organisation has confirmed that COVID-19 is genetically linked to SARS and, consequently, the virus that causes COVID-19 is named “SARS-CoV-2”. Therefore, is it possible that an indemnity for SARS would cover COVID-19? Whilst the diseases are related, the SARS disease is distinct from COVID-19 and SARS is caused by a different virus called “SARS-CoV”. Our view is that insurers will therefore seek to distinguish COVID-19 from SARS.
Is COVID-19 expressly excluded?
Alternatively, some policies have a specific list of excluded diseases and provide indemnity for interruption caused by all other “infectious” or “notifiable” diseases. COVID-19 has been listed as a notifiable disease and it is certainly infectious. Businesses should therefore carefully assess the list of excluded diseases to see whether it excludes COVID-19 and, if it does not, the business may well be covered for losses arising out of the current pandemic.
As with expressly indemnified diseases, when assessing the list of excluded diseases, businesses should be aware of references to SARS. As COVID-19 is genetically related to SARS, it may be argued that COVID-19 is not covered under policies which exclude SARS, or any mutant variation of it.
Unless and until a Court makes any determination as to whether or not the inclusion or exclusion of SARS provides an indemnity for COVID-19, it is unclear as to how this will be treated.
What about the forced closure of business premises?
On 23 March 2020, the Government published a list of businesses and venues that must remain closed. In addition, workers have been advised to work from home where possible to facilitate social distancing measures. This will clearly result in lost time and revenue for many businesses. Policies may indemnify losses caused by the forced closure of business and these policies could provide cover for businesses that have had to close due to COVID-19.
However, often policies will only indemnify for losses occasioned by the forced closure of business premises if the closure arose from an “infectious” or “notifiable” disease. This limitation will require a careful assessment of the policy’s definition of diseases to see whether COVID-19 is covered. Notwithstanding, the focus of these policies is on the forced closure of business premises. It may therefore be more likely that such policies will cover the losses occasioned as a result of the Government’s guidance to close due to COVID-19 as opposed to the disease itself.
Does an employee or customer need to have had COVID-19?
Policies may require that, to be indemnified for losses occasioned by COVID-19, the disease must have manifested on the business’s premises or within a certain distance of it. However, it may be difficult to prove that someone on or near the premises had COVID-19 as testing is currently limited in the UK.
The Government intends to increase COVID-19 testing to 100,000 a day. Businesses should maintain a record of anyone who has been on the premises and has displayed COVID-19 symptoms and ask them to provide the business with their results once they are able to be tested. This will enable businesses to confirm whether someone on the premises has had COVID-19 or not. In addition, the Government releases daily figures of COVID-19 cases in each region and these statistics could be used the further the argument that someone within a certain distance has had COVID-19.
Public and Employers’ Liability
It remains to be seen whether people will bring claims against businesses for failing to put in adequate safeguarding measures to prevent the spread of COVID-19. If such claims arise, it is possible that they will be covered by public and employers’ liability insurance.
However, policies will likely require claimants to prove that they contracted the disease whilst in the business’s premises and as a result of the business’s failures. As above, businesses should keep a record of anyone who has been on the premises and ask them to provide their results if they are tested for COVID-19. This will help to ascertain whether or not any COVID-19 infection has taken place on their premises.
Travel and Event Cancellation losses?
Travel cancellation insurance policies may provide cover for businesses and individuals that have cancelled travel plans due to COVID-19. On 17 March 2020, the Foreign & Commonwealth Office (“FCO”) advised against all non-essential travel overseas. It’s likely that policies will cover the costs of cancelled or rearranged trips, provided the policy was bought before the FCO issued advice against travelling to the relevant destination and the travel was booked for after this date. Most policies only indemnify irrecoverable costs, so it is important in the first instance to pursue a refund, or reschedule, from the airline, travel agent, tour operator or accommodation provider.
However, travel insurance policies do not usually cover “disinclination to travel” and, as a result, businesses and individuals may not be covered if they cancelled trips before the FCO advised against travelling to the relevant destination. Terms of indemnity will vary between policies and businesses should therefore check their own policy’s wording on coverage for cancelled travel.
Event cancellation insurance policies may provide cover for entertainment companies, music promoters and professional sports clubs in particular. Businesses who have had to cancel a pre-planned event as a result of the virus may also be covered. These policies will cover a policy holder for losses caused by an event not proceeding as planned due to factors beyond their control. A short list of specific incidents will usually be excluded from cover and the policy should therefore be carefully checked to confirm whether infectious diseases and/or closure by Government are excluded.
On 15 April 2020, Christopher Woolard, the interim chief executive officer of the Financial Conduct Authority (“FCA”), wrote to the insurance industry and ordered that claims must be assessed and settled quickly for policies where it is clear that the insurer has an obligation to indemnify losses caused by COVID-19. In addition, where there are reasonable grounds to pay part of a claim, insurers are urged to adopt an approach of making an interim payment.
Woolard’s comments will assist businesses who have extended businesses interruption policies which clearly cover infectious diseases, such as COVID-19. Following the FCA’s instructions, insurers will have to settle claims under these policies as soon as possible.
However, Woolard acknowledged that many business interruption policies have basic cover which does not cover pandemics. He noted that the FCA will not intervene in such circumstances. However, the FCA does expect insurers to deliver clear, accurate and timely communication to clients.
This guidance should ensure that insurers help businesses understand the limits of their cover as soon as possible, minimising any confusion. Where policies are disputed, Woolard noted that smaller businesses with a turnover below £6.5m and fewer than 50 employees can complain to the Financial Ombudsman Service.
The insurance industry will be at pains to ensure that the substantial losses which will inevitably flow from the COVID-19 pandemic do not fall on their shoulders. We therefore envisage that insurers will take a bullish approach to COVID-19 coverage issues and look to decline the majority of business interruption losses at least until any Government or Court guidance suggests otherwise. In light of this, we expect that the pay out in respect of business interruption costs by insurers will be relatively small; with insurers and businesses expecting the Government to bear the majority of the bail out.
Most insurers have detailed lists of indemnified diseases and it is unlikely that COVID-19 will be covered, at least until any test case proves otherwise. Businesses may stand a better chance against insurers in respect of event or travel cancellation arising out of the pandemic and on grounds that they will likely have been cancelled due to Government guidance not to travel and / or host events.
Businesses may also be more successful in the event of public and employers’ liability defence costs which may arise out of claims. However, it remains to be seen whether such claims will be successful in any event. Whatever the outcome of any coverage dispute, businesses are best advised to make notifications of potential claims to their insurers and / or brokers now.