After the Sars outbreak of the early 2000s, the sector scrambled to manage its exposure to similar kinds of risk in the future. But in the past months dealing with coverages was not easy
As the effects of the Covid-19 coronavirus pandemic have played out – wreaking havoc on the stock market, global supply chains and business sectors like air travel and leisure –, worry has been growing about exactly how much businesses who have suffered losses will be able to claim back on their insurance policies.
Business interruption insurance is a type of coverage that replaces income lost due to an event like a fire or a natural disaster. Usually either sold as an add-on or included in a comprehensive package as opposed to being a separate policy, it covers things like taxes, operating expenses, payroll, temporary changes of location and loan payments. But like all insurance products, business interruption policies have their exclusions, and infectious diseases are often one of them. Business interruption coverage also usually depends on there being physical loss or damage, and this can be problematic in the event of a pandemic, which is more likely to cause losses through, for example, customers staying away.
After the fright the Sars outbreak of the early 2000s gave the insurance industry, the sector scrambled to manage its exposure to similar kinds of risk in the future, allowing businesses to pay for add-ons specifically to cover infectious diseases. These add-ons proved unpopular with customers, though, and some insurers maintain they were in any case never intended to cover situations like that triggered by Covid-19.
But while some insurers have tried to play down the extent of business interruption claims due to be paid out, experts have commented that much coverage includes no virus exclusion at all. Furthermore, as it was the government which ordered the lockdown in the US in the wake of the Covid-19 outbreak, many there feel that business interruption insurance – which covers losses resulting from situations where government causes operations to temporarily cease – should apply. At the same time in the UK, insurance advisers have been recommending businesses examine their right to claim under “non damage denial of access” clauses, which cover occasions when something other than physical damage prevents business-owners from entering their premises.
So what action should you take if you think you have a valid claim? Experts recommend that the first thing anyone with business interruption insurance who has experienced financial losses should do is to carefully review their coverage and check the details to see whether communicable diseases are excluded. And if they’re not, they say, you should file your claims as soon as possible, even if your insurance broker tells you that they won’t be paid – filing now will put your business in a better position as regards future regulatory developments, which will likely provide more protection than is currently the case. Document your claim carefully and link it to financial records, and remember: analysts suggest that the more closely the claim can be related to physical damage, the more likely it is to get paid.
Lawsuits by businesses claiming they’d been denied due compensation began appearing not long after the first U.S. cases of COVID-19 were diagnosed, so it’s probably worth considering getting legal advice in the event your claim is denied. And finally, check your liability coverage, as many standard commercial insurance policies cover disease, which they consider a bodily injury, and this may help you cover yourself against any eventual claims alleging your business has contributed to the spread of the disease.