What do Business Interruption Policies cover?
These policies cover the financial losses a business may incur resulting directly from:
- physical loss or damage (for example fire, flood, burglary)
- at the premises used by your business
- to the buildings, plant and other assets you have insured
Losses related to COVID-19 (e.g site closures / downturn in business) are not ‘physical’ in nature, and therefore do not fall within the scope of cover.
Business Interruption policies are often extended to cover other types of incidents such as:
- A recognised authority closing your site because of inadequate drains/sanitation or a hazardous material emergency.
- You cannot access your site due to Injury, Murder or Suicide.
- Physical damage occurring at another location which affects your business. For example damage to a neighbouring property prevents access to your business, damage to a business that you rely on to attract customers, damage to power/gas/communications(etc) facilities which disrupt their supply to your business, damage at your customers or supplier sites, damage to transport routes or airports which disrupt the supply to your business.
Once again, losses related to COVID-19 (e.g site closures / downturn in business) do not fall within the cover provided by these extensions.
What isn’t covered?
All insurance policies will exclude certain types of events and hazards. Since the early 2000’s, Business Interruption policies have had standard exclusions for infectious diseases and epidemics. COVID-19 clearly falls within this definition and as such, is excluded from cover.
Many Landlords and Tenants are coming to mutual arrangements to suspend or reduce rent payments where premises cannot be accessed during the lockdown period. For the same reason described above, Business Interruption insurance will not compensate Landlords for this short-fall.
Why do Insurance companies exclude diseases like COVID-19?
Insurance companies must always ensure that if they provide cover for an event or hazard, that future losses generated by these, would not lead to the financial collapse of the company. The financial impacts of Epidemics, such as COVID-19, are so extreme that the worldwide insurance market simply would not survive if insurers provided cover for this type of event. For this same reason, insurance companies will not insure such things as War, Nuclear Disaster and Terrorism.