Business Interruption Insurance and How it Applies During COVID-19
What is Business Interruption Insurance?
Business Interruption insurance plays a key role in keeping a business running after a loss (i.e. fire or water damage) by supplementing lost income and/or covering the costs of additional expenses while the business recovers.
Property Insurance provides cover for the direct loss (i.e. repairing or replacing damaged property), while Business Interruption is there to keep the business afloat while the claim is sorted out.
How is a Business Interruption Claim Triggered?
Without physical damage to the property, Business Interruption insurance will not usually respond.
Business Interruption insurance is typically triggered when a Property Damage loss leads to a drop in revenue or additional expenses. If the business’s ability to generate revenue is negatively impacted by the loss, or they incur additional expenses (i.e. move to a new location, temporary costs to supplement loss of machinery, etc.) the Business Interruption section will come into effect.
For a claim to be accepted by the insurer, the property damage loss would need to be an “insured peril”, such as fire, water damage, vandalism, or vehicle impact. However, it is important to note that while this is the standard, each insurer will have their own specific wording and requirements.
Would Business Interruption Respond for a COVID-19 related claim?
In short, business interruption claims resulting from COVID-19 related events would typically be excluded by insurance.
Most commercial property policies provide an element of cover for business interruption that is caused by an infectious or contagious disease. However, there is no cover for any disease declared to be a “quarantinable disease” under the Quarantine Act 1908, and/or falls into the Biosecurity Act 2015. This link to the Department of Health provides a list of human diseases noted under the Biosecurity Act.
If the infectious or contagious disease does not fall into the above, each insurer will still have specific criteria that need to be met. We have summarised these criteria below, but each insurer will be a little different.
A Business Interruption policy will likely respond if the business has been interrupted due to:
History of Business Interruption and Quarantinable or Infectious Diseases
The insurance industry began to introduce exclusions for losses relating to quarantinable or infectious diseases in the mid 2000’s as a result of stress testing by the financial sector for global pandemic scenarios. The results were potentially crippling and led the re-insurers to immediately withdraw capacity for such events. This left the insurance industry with no choice other than to begin excluding the risk.
There are instances where cover is provided to a business for disruptions to critical overseas supply lines, or where they might be impacted due to border closures. However, this is not common and is usually only covered in special circumstances on customised policies.
Each policy wording must be checked on a case by case basis, however almost all will exclude any claim made as a result of COVID-19 impacting a business operation.
We do still encourage carrying out a review of your policy at the earliest and speaking with your insurance provider to ensure you meet the notification period time requirements for a claim.
Have any questions?
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