Business interruption insurance – is it worth the paper it is written on?

Given the latest government announcements in this fast-moving COVID-19 crisis, many businesses have been forced to close immediately for at least three weeks.

Many of them will have purchased business interruption insurance policies. Whether these specific policies were a worthwhile investment - and how much help they can truly provide much needed financial support in such extraordinary times - will shortly become clear.

We’re understandably experiencing an increase in client queries asking whether their insurance policies provide the right level of cover.

Standard business interruption cover, the type most will have purchased, is intended to deal with physical damage to premises that means a business is unable to trade. Some businesses will have purchased extended cover to include forced closure by authorities or due to infectious diseases. This will be good news for some, but unfortunately not all.

Extended business interruption cover

Extended business interruption cover is available to cover situations where premises have had to cease trading due to an infectious disease.

This is for specified diseases classed as ‘notifiable’. Some policies will refer to a general class of notifiable diseases and others will specify diseases in the policy wording.

With the outbreak of COVID-19, the government came under pressure to extend the list of notifiable diseases to include this new virus. It responded, and COVID-19 was listed this way for insurance purposes from early March 2020.

The reality

Sadly, this change does not take effect retrospectively, so what does it mean in reality? The insurance company stance, that I have been made aware of so far, is that cover’s provided only for diseases specified in the policy. Where the policy was taken out before March 2020, COVID-19 is unlikely to feature.

Where the policy wording provides against closures of premises due to a notifiable disease in general, without specifying the list of them, it seems cover will be provided.

This is the harsh reality of the current crisis, particularly given COVID-19 is fast becoming known as a particularly infectious disease.

The government has called upon insurance companies to play their part to help businesses, but given the enormity of the liabilities for other forms of insurance, such as travel insurance, it is perhaps unlikely to happen without some form of additional pressure.

Other support

To go some way in recognising that many business insurance policies are not worth the paper they are written on, the government has launched a number of schemes to support business.

This includes a business loan interruption scheme where smaller businesses can apply for loans of up to £5m across the UK. Now, this is a loan rather than a grant and therefore not ideal, but it may help with short-term cashflow.

New initiatives are being launched almost daily given this ever-changing crisis and it is worth looking at what assistance your business may be entitled to on the government’s website.

And, of course, if you need some help to navigate the support out there or to discuss the concerns and challenges your business faces, our team’s happy to assist.

Aberdeen-based partner Tim Thomas

Aberdeen-based partner Tim Thomas