The Big Question April 2020: Are insurers right to refuse coronavirus business interruption cover?

James Daley, managing director, Fairer Finance

”I think it seems very unfair that business disruption might not cover an event like coronavirus unless insurers have been crystal clear with their customers. The whole point of business interruption (BI) insurance is that you’re buying it to protect you against the unknown. It defeats the whole purpose if the insurer turns round and points to the small print every time the unknown comes round the corner.

“I appreciate that a pandemic of this nature has the potential to cause significant disruption across every kind of business - and the insurance industry needs to have some way of limiting its exposure. But insurers need to have arrangements in place with the government, so that they can be crystal clear with companies about where the boundaries of cover begin and end.”

Rob Smart, chief technical officer, Mactavish

”Interruption due to coronavirus will be a massive cost to the economy in the coming months, but will mostly fall outside of traditional business interruption cover and risk will be carried by businesses, not their insurers.

”Such cover in most cases will fall under defined ‘contagious disease’ extensions, with this pandemic having made clear that almost everyone has hugely underestimated the risk involved. There may be other sources of specialist cover in some cases, but this will be the exception not the rule.

”It is easy to blame insurers where claims are taken out on a technicality, or disease extensions being restricted to defined, well-known diseases, but where cover for new pandemics is in place, but only to an inadequate sublimit, then such criticism can be unfair as all parties were involved in underestimating the level of exposure.

”However, coming at a time when insurance market conditions are already rapidly worsening across many classes, and with an increasing number of claims being queried on technical grounds, then it is yet another reminder for policyholders to look at their cover and risk profile very carefully.

”We also think the virus will lead to a range of other contentious new claims, ranging from directors’ and officers’ (D&O) liability to cyber.”

Andrew Farr, senior vice president, Lockton 

”A key principle of insurance is that the losses of the few are paid by the many, and the nature of a global pandemic is that the losses are not few but many.

”It is therefore not at all that surprising that when we look into the detail of most insurance policies, we either find exclusions in ‘all risk’ type policies or no specific cover in ‘named peril’ policies.

”The clear exceptions to this position are in travel and accident policies, where there is limited emergency evacuation or enforced stay cover, and also for event cancellation insurance, where by definition, the virus tends to be a covered peril.

”Business interruption cover is invariably associated with and resulting from ’damage’ to property. As a rule, insurers are not treating the presence of a virus either at insured premises or in the vicinity as constituting damage, and so the financial consequences in terms of lost revenue and profit are not insured.

”There are several extensions in cover which are grouped around ’denial of access – non damage’, ’human/notifiable disease’ and ’loss of attraction’, but in many cases human or notifiable disease or diseases similar to coronavirus, such as SARS, MERS, H1N1 or H5N1 are excluded.”

Damian Glynn, director, head of financial risks, Sedgwick International UK

”Coronavirus did not exist when most policies in force were issued and the scope of its impact is the most significant thing to happen since World War II in the UK.

”There are a multitude of issues to consider, both in terms of coverage, causation and quantification. Therefore, to expect an immediate response from insurers may not be realistic – claims are currently being received, but many may not be based on a specific element of cover, leaving insurers to see if there is a home for them.

”To the extent that there is cover available, we are in no doubt that insurers will settle the claims.”