Insurance Market Monitor #1: COVID-19 & Business Interruption

With the situation so much in flux, new information, supply and demand shocks keep emerging regarding COVID-19. Beyond the overarching strategic preparedness and response plans by governments working in collaboration with various role players including businesses and individuals, the most significant consequences to these developments have been the impact to and response by the insurance service industry and, in particular the role we are playing. Minet, secure tomorrow.

IS BUSINESS INTERRUPTION (BI) DUE TO COVID-19 OUTBREAK COVERED?

It is important to note that the BI policy operates by definition, all of which need care in their construction to ensure the policy can fully respond to an insured interruption. We must pay attention to the policy definitions such as, but not limited to, Consequential loss, Insured Damage, Non-damage, Contingent Business Interruption, etc. All the definitions are key to triggering a business interruption claim. Often, we need to extend the definitions to provide the full cover the insured requires (policy extensions). 

Insurance policy extension provide for losses outside of the normal circumstances that the original policy covers. The policy extension will not solely cover all possible losses and scenarios. For example, the Infectious and Contagious Disease extension on a Property Damage and Business Interruption policy excludes certain specified pandemic diseases, so it is important to ensure that businesses are made aware of the extend and scope of cover in place. 

In our region, many insurers have said that they were not heavily exposed to the coronavirus because businesses do not automatically have insurance for disease epidemics and other health risks, though some purchased extra cover. The insured could potentially enjoy both “property damage” and “business interruption” cover due to the Covid-19 outbreak subject to the relevant policy provisions, extensions, conditions and exclusions. We will attempt to deal with each of the different scenarios, circumstances and possible insurance coverage in detail in the next updates as new information emerges with every set of data received on the Covid-19.

The standard property insurance policies offer coverage for Business Interruption caused as a direct result of property damage. There must be insured damage to property used by the policyholder in order to trigger the BI coverage. In the past, it was difficult to demonstrate direct physical damage or loss that would trigger BI coverage related to the outbreak of a disease like Covid-19.

There are several potential non-damage coverages that may come into play and allow for the recovery of BI losses following the outbreak of Covid-19 provided the virus is not amongst the policy exclusions or is an Insured Event/Loss. Examples include:

• Pollution, contamination and human contagious diseases – original intention was to provide BI cover for the hospitality/restaurants suffering loss of business due to “fear and apprehension” following a tragic event or closure of the premises by the authorities due to an outbreak of notifiable contagious human disease. 
• Civil / Legal Authority - this coverage allows for a recovery of losses incurred when the government orders a mandatory shutdown or evacuation of an area or workplace.
• Contingent business interruption – this coverage allows for the recovery of losses caused by a disruption at a key supplier or customer of the policyholder. An Insured Damage to that supplier / customer is often a requirement.

The modern-day brokers and underwriters have overridden many standard property damage exclusions and now offer their clients cover for remote but potentially serious “non-damage” events like Covid-19. 

Minet must take the lead in the use of specific, enhanced wordings added to traditional policies via bespoke or manuscript forms that allow wider scope of coverage. When considering the coverage afforded by policies, it is important to satisfy yourself with what is not covered by reviewing the policy exclusions. 

After the outbreak of SARS and Ebola, most insurers have become more cautious about offering coverage for communicable diseases and this has become an exclusion on most standard insurance policies. However, on request, the insurers allow the policyholders to buy back coverage for certain specified pandemic diseases at an additional cost.

John Mawere ǀ Global Business Coordinator ǀ Minet Holdings Africa (Pty) Ltd