Business interruption insurance in a nutshell
Business interruption insurance (BII) specifically covers a company when it’s unable to operate and/or trade. It differs from, for instance, buildings insurance, which covers physical property damage only. Typically, business interruption insurance covers scenarios such as a building being forced to close, thus affecting trading (as opposed to a building being damaged by, say, a storm, flood or fire).
A little more detail
Coronavirus doesn’t technically fall within the usual reasons for forced business closure (storm, flood, fire, theft, etc.). It’s a position that has been confirmed by the Association of British Insurers (ABI), and reiterated by the Financial Conduct Authority (FCA).
However, in mid-January of 2020, the Supreme Court pronounced that coronavirus should be included as an “occurrence of a Notifiable Disease within a radius of 25 miles” of a business’ premises. Essentially, this invokes certain clauses (the impact of diseases and the resulting prevention of access to businesses) that were overlooked by the Court’s initial declaration regarding businesses affected by COVID-19.
So it’s the ‘disease’ clause of BII that provides hope for businesses disrupted by the worldwide pandemic. However, notions of what constitutes a ‘notifiable’ or ‘infectious’ disease will vary and, since coronavirus is relatively new, some policies won’t cover it.
If your insurance doesn’t specifically identify which diseases invoke the clause, there’s more likelihood of you being able to make a claim – particularly as the UK government included coronavirus among its list of notifiable diseases on 5 March 2020.
As ever with this kind of thing, it’s important to carefully examine the wording of your policy.
Lockdown versus COVID-19
Although the lockdown is a consequence of COVID-19, the current situation does beg the question: can I make a claim based on lockdown if not on the coronavirus itself? Again, it depends on your policy’s small print. Some insurers will make payments if business interruption is a result of action taken by a local authority, a competent authority, the police or the government.
But even if this is an avenue worth pursuing, you will need to evaluate your business’ financial loss, showing a decrease in revenue and gross profit and/or an increase in running costs.
So does BII cover COVID-19?
Whether or not you can claim depends on the extent, terms and conditions of your business interruption insurance policy. And in respect of any losses your business may have suffered, actual cause will need to be defined. Whether or not you have acted reasonably to control any losses will have to be taken into account.
Finally, your policy will need to include a force majeure clause, which typically covers extraordinary events that are beyond the control of your business. And even then, it could come down to interpretation of this clause. For further information regarding business interruption insurance, please visit https://www.fca.org.uk/firms/business-interruption-insurance/policy-checker.
How much will I get if my claim is successful?
The sum you receive will depend on whether your policy covers loss of income or a reduction in gross profits, and whether your claim is due to COVID-19 itself or the consequential lockdown(s).
If you haven’t already, you should hear soon from your insurance policy provider if you’ve made a claim in relation to the pandemic. The Financial Conduct Authority (FCA) has instructed insurers to honour claims quickly, making interim payments where necessary in lieu of the full sum being paid in the short term.
Please visit the ABI’s website regarding business interruption insurance for further information: https://www.fca.org.uk/firms/business-interruption-insurance/policy-checker.
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