Coronavirus and business interruption insurance: what you need to know

The UK economy is facing one of the most challenging periods in its history, with businesses closing up and down the country and much of the population ordered to stay indoors.

Naturally, many are wondering whether business interruption insurance will cover the financial hit of coronavirus/COVID-19.

In this article, we’ll take a detailed look at how pandemics like coronavirus are treated by providers of business interruption insurance, and share expert insight on the current situation.

We’ll cover:

Coronavirus and business interruption insurance: what is covered

The short answer from the insurance industry is that your business interruption insurance policy is unlikely to cover you for coronavirus losses.

As Alex Balcombe, partner at claims consultancy Harris Balcombe puts it: “Most businesses will not be covered for business interruption due to COVID-19. In fact, the vast majority of policies do not cover anything related to COVID-19.”

In short, a standard business interruption insurance policy will not cover the economic impact of a pandemic like the coronavirus.

However, there are two extensions which, depending on the specific wording of the policy, might cover coronavirus-related business disruption – the Infectious Disease Extension and Denial of Access Extension (non-damage).

Let’s examine each in turn:

The infectious Disease Extension

On the face of it, this sounds like the perfect extension for pandemics like the coronavirus – they are, after all, infectious diseases.

However, the devil is in the detail.

Many business interruption insurance policies that include this extension specifically state which diseases are covered and, as COVID-19 is such a new disease, it won’t be listed.

While it’s tempting to think that insurers simply do this to avoid paying out, their argument actually makes sense. How can they work out the chances of paying out on a disease that most likely hadn’t even been identified when the policy was taken out, and adjust their premiums accordingly?

There is, though, a glimmer of hope. Some policies will cover diseases based on the actions of the government and, as COVID-19 has been named as a notifiable disease throughout the UK, it may cover business disruption from the coronavirus crisis.

Another potential spanner in the works is that many business interruption insurance policies that include the infectious disease extension say that a disease is only covered if it is found on your business premises, or within a certain distance of your premises.

The Denial of Access Extension (non-damage)

This extension sounds a bit vague, but the idea is that you’re covered if you are prevented from accessing your property by an event, or by the actions of a competent authority (i.e. the government in this case).

Again, the wording is crucial – Alex Balcombe notes that “there are often very subtle differences in wording, depending on the insurer or policy.” These differences can be crucial in determining whether your policy covers coronavirus disruption.

The key message is simple – go through your policy with a fine-tooth comb and if you don’t understand any of the details, make sure to ask your insurer or insurance broker.

It’s unlikely that you’ll be covered for coronavirus disruption, but make sure you check: as Balcombe puts it, “there is a small chance that your current cover already protects your business against the consequences of coronavirus – and those with this cover are unlikely to realise it.”

Summary

• Your business interruption insurance policy is unlikely to cover coronavirus losses
• Most policies name the diseases they cover against
• Many policies require an outbreak on or close to your business premises
• Make sure you check your policy carefully, if it includes the infectious disease extension and/or the denial of access extension (non-damage), then you may be covered, depending on the wording of these clauses