As the financial impact of the pandemic continues to increase, we are increasingly being asked whether affected businesses can recover all or any of their losses from their insurance policies.
In short, it will depend on the terms of the specific policy.
Whilst there is a general understanding in commercial contracts of what is usually covered under a particular type of policy, each individual policy will contain its own coverage provisions applicable to the business in question.
The type of insurance that is most commonly considered is business interruption. However, these Business Interruption Insurance policies are typically intended to kick in where the business has been interrupted due to physical loss or damage to property. It may, therefore, be difficult to demonstrate this has occurred as a result of the coronavirus outbreak.
Insurance policies extended to cover COVID-19
Some policies extend cover for losses caused by notifiable diseases and COVID-19 was classified as such earlier this month. Whilst this initially appears encouraging many insurance policies have been drafted to specifically list out the diseases covered. Where this is the case, insurers have been quick to make clear that notwithstanding COVID-19 now being classed as a notifiable disease, their insurance policy does not provide coverage.
There may be other elements of an insurance policy that provide cover if the business has been closed by a competent authority which of course has been mandated for many businesses in the last few days or other denial of access provisions.
There are other policy options available which may also respond in the current situation.
Cancellation insurance, which is typically obtained for events such as concerts, sports and business events, and trade credit insurance, which covers a business in the event its debtors do not pay sums which they are legally obliged to pay.
Check your business insurance policy
In summary, all businesses should be checking their insurance policies, with particular attention to the specific wording and exclusions, and liaising with their brokers and insurance providers accordingly.
Unquestionably there will be significant debate between insurers and their clients. It has been reported that, as this situation develops, some insurers are intending to clarify their policies by imposing a specified exclusion relating to COVID-19 on all new policies or renewals.
Check supplier and customer contracts
In conjunction, businesses should also be checking their contracts with their suppliers and customers in order to establish potential liabilities and identify actions they should be taking in order to mitigate losses and/or otherwise protect their position. Force majeure and cancellation clauses will be of particular significance.
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