Business Interruption Insurance and Coronavirus
On 1st May 2020, the FCA released a statement that it ‘intends to seek legal clarity on Business Interruption (BI) insurance to resolve doubt for businesses who are facing uncertainty on their claims’ regarding the Coronavirus (COVID-19) pandemic.
The pandemic continues to affect lives and livelihoods globally. Although the UK Prime Minister announced a ‘conditional plan’ on Sunday 10th May to enable some businesses in England to open again, clear guidance has not yet been given whether a business can make a claim on their Business Interruption Insurance policy for the time they have been closed.
Business Interruption insurance is usually part of a combined or commercial property policy, designed to protect businesses in the event of a disruption to their operations, such as a fire at their premises.
There are many ways that businesses have been affected by the virus outbreak, such as:
- Sick or home-working employees
- Furloughing or termination of employees
- Enforced premises closures
- Supply chain issues
- Travel-insurance restrictions
- Reduced customers
- Uninhabitable or unusable premises
Due to this unprecedented situation, it is uncertain as to whether coronavirus meets the specific requirements of a Business Interruption policy.
As an example, coronavirus is unlikely to be deemed as ‘physical damage’ to a business premises as a fire might, despite any requirement to vacate or decontaminate premises. Often a ‘pollution and contamination exclusion’ limits coverage of this nature.
Although Coronavirus (COVID-19) was listed as a notifiable disease by the UK Government on 5th March 2020*, usually an insurance policy lists the specific diseases which it covers. As coronavirus was unknown until recently, it is unlikely to have been listed in policies.
Some very large businesses may have specific wording in their policy around cover during a ‘pandemic’ but a smaller business is unlikely to have this level of cover.
In the FCA’s statement, Christopher Woolard, Interim Chief Executive of the FCA, said:
‘We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency. However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly. There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.
‘Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.
‘In addition to this court action, the current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value. Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers. Today’s proposed guidance and statement aims to make our expectations clear to all firms in the insurance market and provide future certainty.’**
If you would like to discuss a new insurance policy, a claim or query, please call our team on our usual office numbers below.
Our coronavirus updates and FAQs are available here.
You can view the most recent UK Government guidelines on their website.
* Coronavirus (COVID-19) listed as a notifiable disease
** FCA seeks legal clarity on business interruption insurance