Business Interruption Insurance

May 19, 2020

What is business interruption insurance?
Business interruption insurance is a form of business insurance that provides coverage to the policy holder for certain financial losses suffered by the business if it is unable to operate its business as usual due to an unforeseen event.

Some policies refer to business interruption insurance as “revenue protection” or similar, and the business interruption element of the cover often forms part of a wider business insurance policy rather than being a standalone policy.

Coverage scope and limits vary by policy, as do policy exclusions – as a result, some policies may provide coverage where others do not.

Business interruption insurance policies will often cover lost profits and increased running costs resulting from business interruption as a result of unavailability of the business premises due to natural disasters, but the policy schedule and wording must be checked on a case by case basis to establish what a particular policy covers.

Some policies will also provide some protection in respect of unavailability / closure of business premises in other scenarios – for example in the event of closure by a public authority or based on an outbreak of a disease at the business premises or within a certain radius of it.

Due to the widespread business disruption caused by Covid-19 / Coronavirus, it is the latter categories that have been subject of much attention in terms of whether or not the business interruption insurance policy coverage is triggered by the pandemic.

My business interruption insurance policy doesn’t provide cover from Covid-19?
We understand that some businesses have been advised by their insurers and brokers that their business interruption Insurance policy will not provide coverage in respect of the Covid-19 / Coronavirus pandemic.

Whilst this may be correct, there is no “one size fits all” answer – much will depend on the wording of the insurance policy itself and even then, the position is not always clear cut.

It is therefore vital to carefully consider the wording of the policy in question in order to form a view as to whether or not the policy coverage is triggered by the present pandemic.

The regulatory landscape
Business interruption insurance is firmly on the Financial Conduct Authority’s (FCA) radar – details of the steps that the FCA is taking can be found here.

The FCA has signalled its intention to obtain court declarations in an attempt to resolve the contractual uncertainty that currently exists around the validity of some claims under business interruption insurance policies.

General FCA principles and rules apply to the sale, administration and claims handling related to business interruption Insurance policies, and the Financial Ombudsman Scheme is available to eligible complainants (typically where a policyholder is a business with an annual turnover below £6.5m, and fewer than 50 employees or an annual balance sheet below £5m).

How could we help with a business interruption insurance policy?
We advise businesses on whether or not their business interruption insurance policy provides coverage in respect of the Covid-19 / Coronavirus pandemic.

We are also on hand to advise businesses on the available options if they are dissatisfied with the response they have received from their broker or their insurer in respect of an enquiry or a claim under a business interruption insurance policy.

Contact Mark Chapman on 01276 686222 or Mark.Chapman@herrington-carmichael.com for an initial no cost discussion.

This article reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

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