Opinion: Covid-19 and business interruption insurance – time to act

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F&B companies impacted by Covid-19 should check their business interruption insurance and make a claim before it’s too late, says Capital Law's Catrin Povey

Businesses that have suffered losses as a result of the coronavirus pandemic have had difficulties claiming and accessing business interruption insurance, for a couple of reasons.

First, standard business interruption insurance policies only cover damage to property as a result of fire, storms or flooding for example, which are unlikely to be triggered in the current circumstances. Second, even if the policies contain extensions that provide wider scope of coverage, insurers have said that these policies were not intended to cover losses connected with pandemics so they will not be paying out in most cases.

Why ambiguity might be in your favour

However, having reviewed dozens of policies for businesses in this situation – including many in the food and drink sector – we have found that there is often enough ambiguity in the wording to argue that the policy should be interpreted in favour of the insured. Businesses should therefore never assume that they are not covered.

Here are some extensions that may enable foodservice operators to make a successful claim.

  • A notifiable/infectious disease extension will typically apply if a disease is found on the premises, or within its vicinity. This may apply if an employee, or customer exhibited symptoms, or has had to self-isolate.
  • A denial of access extension will typically apply if a business is required to close by an appropriate authority in the context of an emergency, and on 20 March 2020, the UK government precisely required, under The Health Protection (Coronavirus Restrictions) Regulations 2020, all restaurants, cafés, public houses and similar operations to close.
  • Standard suppliers and customers clauses cover loss caused by damage at suppliers’ and customers’ premises. This may apply if a business had been directly affected by their suppliers ceasing supplying, or their customers ceasing to purchase items – whether that’s because they were forced to close by the government, or had to close for a deep-clean after a confirmed case of Covid-19 on their premises, or because they could not stay open and maintain social distancing. Foodservice operators can’t function normally if their distributor is closed, and inversely distributors cannot trade if the operators it normally supplies are closed.
  • Loss of attraction clauses vary, but it would typically cover accidental loss, or destruction of, or damage to property, within a one-mile radius of the premises, which either prevents or hinders the use of the premises, or causes a fall in the number of customers attracted to the premises. This could for example apply to a food retailer still open and located in usually busy town centres but deserted during lockdown.

Don’t delay

The Financial Conduct Authority is currently seeking legal clarification from the court, on which business interruption insurance policies apply to which cases. But businesses shouldn’t wait for a decision to make a claim, as each policy is unique and most of them contain conditions which require policyholders to claim “as soon as possible”. As we are now into the third month of lockdown, the risk is that many insureds will have left it too late to claim.

Catrin Povey leads the insurance practice of Capital Law