“Most commercial insurance policies are unlikely to cover pandemics or unspecified notifiable diseases, such as COVID-19. However, those businesses which have an insurance policy that covers government ordered closure and pandemics or government ordered closure and unspecified notifiable disease should be able to make a claim (subject to the terms and conditions of their policy). Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers.” UK Government
The new coronavirus disease 2019 (COVID-19) outbreak continues to be a top-of-mind concern for organisations and individuals across the globe. As COVID-19 becomes increasingly widespread, it’s not only raising fears about the well-being of the general public, but it’s also disrupting business operations and creating insurance exposures.
In fact, COVID-19 has already led to business interruptions, supply chain issues and significant liability concerns – all of which can open businesses like yours up to claims. As such, it’s important for organisations to understand how COVID-19 can impact their insurance policies, review their existing cover and determine what precautions they need to take in order to control their losses.
Review the following guidance to understand potential insurance exposures associated with COVID-19 and how different forms of your commercial cover could respond.
As many operations close due to COVID-19 concerns, there’s a growing question of whether or not business interruption insurance can help organisations recover lost revenue. In the event of a loss, business interruption insurance provides cover for income a business would have earned had it been operating normally. It can also help pay for expenses like employee wages, taxes, rent, loan payments and relocation expenses.
Typically, business interruption insurance is triggered by a physical loss or damage. Under this interpretation, contagious diseases like COVID-19 would not count as a covered loss.
However, some argue that COVID-19 can contaminate physical objects and workplace surfaces (eg tables, chairs, toilets or equipment), which in turn would force businesses to cease operations. In these scenarios, business interruption insurance could provide some protection. Still, keep in mind that insurers may push back, making cover unavailable.
Whilst the Government and the Association of British Insurers have confirmed most businesses will not have purchased cover for this type of incident, as with any loss, policy wording is critically important and could make all the difference when it comes to determining the validity of a claim. Business owners like you should carefully review your policy extensions and exclusions with a qualified insurance broker to ensure robust cover.
Supply Chain Issues
Business interruption insurance is a crucial aspect of risk management programmes, but it does not extend to disruptions to a third party. That’s where contingent business interruption insurance (CBI) comes in.
Unlike traditional business interruption insurance that compensates the business owner for a loss resulting from damage to their own property, CBI allows you to transfer the risk of certain losses to the property of a third party. CBI is an optional extension of business interruption insurance that reimburses lost profits and extra expenses resulting from an interruption of business at the premises of a customer or supplier.
This type of cover is increasingly important as COVID-19 continues to affect the global economy. Even if a business is not located in an area where COVID-19 has been detected, aspects of their supply chain might be, leading to potential disruptions. In fact, in China – where COVID-19 originated – many workers have been ordered to stay home, forcing some manufacturers to halt operations. Without access to the products or components they need, businesses that partner with these manufactures also have to stop distribution.
While CBI could provide cover in this scenario, there are caveats. With CBI, the covered third-party property may be specifically named, or the cover may simply blanket all customers and suppliers. Be sure to review your policy’s language to ensure your suppliers are included in the policy. Additionally, similar to traditional business interruption policies, some form of property damage will need to occur before cover is triggered. Again, contamination may constitute as property damage, depending on the policy wording.
COVID-19 raises a number of liability concerns, particularly if guests, customers or employees allege they became sick due to your business’ negligence. With this in mind, it’s important to take the following insurance considerations into account:
• Public liability insurance – Public liability insurance protects your business from financial loss should you be liable for property damage or personal injury caused by your services, business operations or employees. It can protect you from costs associated with bodily injuries, damage to third-party property, personal injuries, medical expenses, legal concerns and more. When it comes to COVID-19, public liability policies should provide cover and allow you to defend claims. However, in order for a claim to be valid, the claimant would have to allege the disease was contracted due to the insured’s negligence and detail how, when and where they got sick – which could be difficult.
• Directors and officers (D&O) insurance – Shareholders and other stakeholders could take legal action against your business should you fail to respond appropriately to COVID-19 concerns. Specifically, stakeholders may contend that your senior management failed to develop adequate continuity plans or detail how COVID-19 could impact the company’s financial performance. It should be noted that most D&O policies exclude cover for bodily injuries, but may offer some protection depending on the specific allegations. As such, it’s important to review the scope of your D&O policy to confirm you are covered in the event of an incident.
• Employers’ liability insurance – in instances where an employee believes they contracted COVID-19 at work, a number of employers’ liability concerns come into play. Notably, when it comes to workplace illnesses, most claims are only valid if the illness is occupational in nature. With this in mind, contagious diseases are generally excluded from employers’ liability policies. However, cover may be triggered if the illness arose due to or in the course of the worker’s employment. In general, these scenarios are examined on a case-bycase basis, but could include instances when a health care worker contracts COVID-19 at the medical facility at which they work, an airline employee contracts COVID-19 from a passenger or a hospitality worker contracts COVID-19 that is later linked to a large event at which they worked.
Preparing for a Claim
While COVID-19 introduces a level of uncertainty when it comes to insurance protection, there are steps that your business can take to prepare for a claim:
• Review your existing insurance policies and their provisions to identify potential gaps in cover.
• Analyse and modify existing continuity plans, estimating the impact of a longterm closure.
• Identify equipment, services and third parties that are critical for continued operation.
• Have a process in place for responding to a loss. This includes detailing how the loss occurred and the impact it had on your operations, tracking all expenses associated with the claim and outlining how the claim could impact third parties.
Contact one of our brokers for additional guidance and insurance solutions.