Insurance Against the Extraordinary: What Claims Can Be Made For Coronavirus-related Losses?
It has been reported by BBC News that many businesses are struggling to get their insurers to pay out on insurance policies for losses suffered as a result of COVID-19. The experiences reported have become familiar to Greg Flett in our dispute resolution team.
The General Position
Unfortunately, despite the early statements of the UK Government that their position on listing this as a “Notifiable Disease” would allow claims to be made on relevant insurance policies, the position for almost all clients is likely that their policies do not cover the loss of business brought about by the current lockdown restrictions. Insurers, as a result of the potential impact of the SARS and Swine Flu outbreaks over the last twenty years, took a substantial hit for policies that were designed to pay out for business interruption brought about by disease. In order to avoid that in future, many (if not all) insurers have been taking steps to ensure that their policies do not provide cover for any and all disease outbreaks, but instead for specific “known” diseases, such as Legionnaires Disease. As a result, many businesses will consider that they have cover for business interruption as a result of disease but we are aware of no policies which would specifically cover COVID-19, the disease having only been first noted in late 2019. The result of that is such that most business interruption policies will not pay out for the loss of business in the current circumstances.
Some businesses will have had access to pandemic cover, designed for any situation in which a worldwide pandemic is declared by the World Health Organisation. However, these policies are not intended for SMEs, and are likely to have been considerations only for the very largest of companies in the Fortune 500 or FTSE 100. For SMEs, these policies simply do not exist and they will not be likely to be any more available as a result of the current circumstances.
Policies which do cover COVID-19
In some (extremely limited) circumstances, cover may be available. In discussion with our broker contacts, it is estimated that perhaps only 5% of all policies may provide cover for the current circumstances. For some policies, cover was provided for business interruption as a result of any notifiable disease, but the list of “notifiable diseases” in the policy was not restricted. In those circumstances, claims should be made as soon as possible. Each case will depend on its own merits and it is important to check the specific wording of your policy.
In other news, the FCA have advised that, where cover is available, interim payments ought to be made where possible, providing some further hope to those few business with cover in place.
Position of Insurers
Although, as noted above, we expect insurers to potentially be difficult about payments even where cover is potentially available, there are others who are using this opportunity to consider their position and to offer discounts for their customers. Allstate, in the USA, for example, have offered discounts to their motor insured given the drop in motor accidents during the COVID-19 restriction period. It remains to be seen what other companies will offer in this regard but we expect that more companies may follow suit.
Although not a formal insurance policy, the UK Government has: created the Job Retention Scheme; encouraged lenders to be flexible both in terms of existing loans and in providing new loans; allowed business rates relief and other tax reliefs; and put in place a statutory extension for the termination of leases in the event of non-payment of rent. These will provide some relief to struggling businesses where insurance is not available.
In time, once the dust has settled on the current outbreak, insurers and Governments are likely to take a close look at what cover might be available and how that ought to be backed. What is clear is that insurance companies are not set up to protect all their customers in times like these and insurance against pandemics is likely to become akin to that available for acts of terrorism or flood, through some form of centralised “pooled” and Government backed re-insurance fund.
Thinking to the Future
One thing which we are very keen to ensure that clients do not do is to think that, because their insurance policy does not cover them now, they should consider less insurance in future to cut costs. The long-term economic and social impacts of COVID-19 are unclear and the current circumstances unprecedented. What businesses should be thinking about going forward is ensuring that they have appropriate insurances in place for key parts and employees of their business. In an uncertain future, having these policies in place might provide the vital lifelines that businesses will need.
Businesses worried about the losses to them arising from business interruption brought on by social distancing guidelines arising from the COVID-19 pandemic should take all proactive steps to protect their businesses, including availing themselves of government assistance and the assistance of their banks. All insurance policies should be reviewed to consider what cover might be available. Going forward, a meeting with your insurance broker should be arranged in order to consider what policies might be available to protect you against the worst outcomes of any further pandemic.
If you would like guidance or assistance on any of the issues arising from this article, please contact the Dispute Resolution Team who will be pleased to assist you.