Can businesses rely on their commercial insurance policies to help them cope with the impact of coronavirus?

The extraordinary and unprecedented level of disruption the current coronavirus pandemic is causing globally will act as a breeding ground for commercial disputes. Regardless of whether they arise from disruption to services, failure to fulfil contracts or as a result of the inevitable financial distress that many businesses will experience, leading to their inability to pay their outstanding invoices. 

Many disputes will result from commercial insurance policies, related to the interpretation of the cover the policy delivers for losses incurred due to the coronavirus. Exclusionary clauses must be carefully scrutinised to ensure whether they can actually be triggered. In the past, the aftermath of other pandemics saw a considerable number of disputes regarding the interpretation of the commercial insurance policies.

Standard commercial insurance policies in the UK which the vast majority of businesses hold, commonly have clauses relating to commonplace risks such as fire damage, flood, theft, key-man accidents or illness etc. such policies support thousands of businesses.  However, an extremely small number of such policies actually have clauses relating to infectious disease; furthermore of those which do have such clauses, the possibility of the clauses actually being applicable to the coronavirus reduces even further. 

The success or failure of bringing a claim against your insurer may hinge, not on the policy itself but on your lawyer’s ability to interpret the clauses of your policy in relation to the situation that the coronavirus has caused. The British government’s clarifications and subsequent actions will also be a factor in determining whether a clause, such as a business interruption clause, can be triggered. The fact that coronavirus has been identified as a notifiable disease is a help but will it be sufficient to be of real assistance to businesses?

The Association of British Insurers (ABI) has cautiously addressed the issue saying “claims will be dealt with in line with the wording of the specific policy, as is the case with all claims.  We have relationships with several underwriters and their specific wordings around business interruption and notifiable diseases is not necessarily consistent, some could be more favourable than others.”  The ABI further stated that whilst businesses with the right type of cover could make a claim, it also stated that the “vast majority won’t have purchased extended cover.” 

Lloyd’s of London has embarked on an exercise to establish the eventual likely cost of the coronavirus pandemic across all areas. Lloyd’s website is advising that the first port of call for those wishing to bring a claim relating to the pandemic is the insurance broker. As commercial insurance policies are “advised sales” as the majority of policies are embarked on with the assistance of a broker or advisor who works beside the business to advise on the best type of cover to suit the needs of the business.

The policies are tailored to the business and its specific requirements. For example, if an insurance policy covers business or supply-chain interruption losses attributable to viral outbreaks and if the implementation of precautionary steps by the business could prove costly, we recommend not to wait as time is of the essence. A prudent business should consider lodging a protective notification of such circumstances to its insurers as a preservative step in case such loss or damage subsequently manifests, if, for example, a temporary office or business facility has to close or there are travel bans and restrictions and quarantine arrangements imposed by Government policy.

The insurance industry may believe that the fact that a pandemic is so very rare resulting in a very small fraction of businesses including a clause to address such an event in their commercial insurance policies; it will therefore not be likely to face very many claims arising out of the crisis.

Giambrone’s Insurance Team has the expertise to pick apart the underlying commercial policies and our lawyers will use their exceptional legal knowledge of insurance liability to steer our way through the insurance policies and negotiate a solution for our clients.

Our Insurance Lawyers are continuing to monitor the impact of the novel coronavirus on businesses and will provide further updates on material developments as appropriate.

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