In response to the COVID-19 outbreak, the UK government has announced that many businesses must close. The government’s previous approach had been to recommend – but not mandate – closures of certain businesses including social hubs such as restaurants and pubs. This had given rise to criticism that in restricting trade for those businesses whilst not compelling their closure, the government’s actions were causing business interruptions, without creating the conditions that would enable the affected businesses to make insurance recoveries.
Even now that the government has changed its approach, the ensuing business interruption losses are unlikely to be covered by standard business interruption policies. As the Association of British Insurers (ABI) has recently confirmed, the majority of such policies require physical damage at the property which prevents the business from continuing to trade. Individual businesses may well have purchased extensions to standard business interruption cover, for instance in respect of losses resulting from notifiable human infections or contagious disease. However, whilst COVID-19 was classified as a notifiable disease on 5 March 2020, a number of common disease extensions are not triggered on this basis, but rather specify the diseases in respect of which cover is provided. If so, they would be unlikely to provide cover in respect of COVID-19. This would, of course, depend upon the specific policy wording.
The likely scale of COVID-19 related loss has given rise to calls in the U.S.A for insurers to provide indemnity for business interruption even where their policies do not cover it, either because of a specific policy exclusion, or on the basis of the requirement for physical damage. The UK government has confirmed that they will not retrospectively re-write insurance policies so that they provide cover for otherwise uncovered losses. To support affected businesses in the UK, the UK government has announced a temporary Coronavirus Business Interruption Loan Scheme, to be delivered by the British Business Bank, which will support primarily small and medium-sized businesses to access bank lending and overdrafts. To assist larger companies, the government has launched the Covid-19 Corporate Financing Facility, under which the Bank of England will buy the short term debt (commercial paper) of companies deemed to make a “material contribution to the UK economy”.
As noted in our article COVID-19 and Insurance Coverage for Business it remains to be seen whether insurers will develop bespoke policies providing specific cover for COVID-19 related loss by way of an extension to the traditional business interruption policy. In a situation of this scale, it may be that collaboration between government and the insurance industry is the only way to ensure that businesses are not significantly impacted, in some cases to the extent of threatening their survival. Going forward, it may be necessary for a government backed scheme to ensure that there is sufficient capacity to enable the insurance industry to write such risks, in a similar way to the government backed Pool Re scheme, which has enabled coverage for terrorism related loss.
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