As most companies will now unfortunately be aware, if they purchased business interruption insurance with the 'Notifiable Disease Extension', it is unlikely to cover losses caused by coronavirus (COVID-19).
This is because insurers, particularly since SARS epidemic which affected parts of Asia in the early 2000s, have sought to limit the scope of cover to known notifiable diseases – rendering these policies of little use in the event of a new disease becoming notifiable during the policy period, as has happened with COVID-19.
Insurers could however expand their cover to take account of new diseases, if they choose.
The broad form 'Disease Extension', outlined below, would provide cover for any ‘loss resulting from interruption of or interference with the business carried on by the insured at the premises’ in respect of:
- An outbreak of a human infectious notifiable disease at the premises/within 25 miles of the premises, or of the discovery of an organism likely to give rise to such a disease.
- The discovery of vermin/pests at the premises causing a restriction on the order or advice of a local authority.
- An accident or defect in the drains causing restrictions on the order of a local authority.
- The occurrence of murder/suicide at the premises.
Hotels, cafés and restaurants clearly need such cover, as do schools, hospitals and leisure centres/swimming pools. On a much wider basis, any business involved with the production or distribution of food should give careful consideration to the need to extend the basic policy wording in this way.
Insurers will be aware of the effect of limiting cover to a list of known diseases, and there are business reasons for doing this.
However, the issue is whether they ensure their customers understand the limits of their policies before agreeing to them.
In its 2019 edition on Business Interruption Issues (p140), The Chartered Institute of Loss Adjusters (CILA), which adjusts losses on behalf of insurers, states that: "A clear understanding of the scope and limitations of the cover at inception is essential."
It is unclear to what extent insurers or brokers ensure policyholders have such an understanding at the beginning of their cover, but the shockwaves that have rippled through whole sections of industry, from catering to aviation, regarding the limits of their cover suggests that more could be done.
Equally, insurers may feel that they are being unfairly treated as scapegoats, in what are after all unprecedented circumstances.
For more information on our insurance disputes expertise, please contact a member of our insurance and reinsurance disputes team.
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