Many business owners who purchased business interruption insurance expect or hope that they'll receive some reimbursement from their insurer for lost revenues as a result of the lockdown, but will they be covered? It's unlikely.
What is Business Interruption Insurance?
The robust UK insurance market offers many different types of business insurance products to address specific risks that a business might face. One type of business insurance protects against a drop in revenues if a business cannot operate as usual due to certain perils. This is called "business interruption" insurance (BI).
Business interruption insurance covers the loss of income during periods when a business cannot operate as usual because of damage. It covers losses related to lost income and can also cover a business for increased working costs.
Is Covid-19 Covered?
Most business interruption insurance policies in force in the UK only cover situations where the interruption was due to physical damage, for instance flood or fire. Many don't seem to cover pandemics. And there are very few businesses that have not been closed by the lockdown.
As this is a complicated area, the FCA has been collecting data from firms and now estimates that most business interruption policies "have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic."
That said, some companies may have paid extra to be covered for business interruption cover due to a notifiable or infectious disease. On 5 March 2020, the UK government listed COVID-19 as a notifiable disease. However, these extensions typically do not cover any new diseases such COVID-19, instead limiting cover to a specific list of diseases.
And even in when infectious diseases are covered by a business interruption policy, the cover would typically be limited to situations where a specific disease (e.g., Legionnaires' disease or Norovirus) is present at a business premises, requiring it to be shut down and cleaned.
What You Should Do
If you have business interruption cover and have lost revenues due to coronavirus, contact your insurer to find out if you’re covered. Also, read through your policy wording to learn what’s covered and what’s excluded. Look for the Exclusions section, as well as any mention of infectious diseases in the document. Ultimately, whether or not your claim is valid depends on the terms of the policy, that is whether or not coronavirus falls within the cover offered by the policy.
If you have a complaint regarding how your insurer is treating your claim, you can contact the Financial Ombudsman.
BI contractual uncertainties are already leading to disputes between the insurers and the insured. As a result, the Financial Conduct Authority is currently seeking a court declaration to resolve contractual uncertainty in business interruption (BI) insurance cover, which should provide the basis for deciding how much is payable under individual policies.
Even if you want to buy business interruption insurance to cover a second wave and subsequent lockdown, you won’t be able to buy it because the pandemic has already been declared and would predate your policy start date. And going forward, it’s expected that insurers will specifically exclude Covid-19 from cover anyway.