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Covid-19 and Business Interruption – are you covered?



The out-break of Covid-19, which originated in China and has since spread to most of the world, is one of the most serious threats to public health in recent times and has now been designated as a pandemic by the World Health Organisation. 

As the virus spreads, it is causing disruptions, resulting in substantial financial losses, to the businesses of many organisations as a result of a number of factors, including the quarantine or self-isolation of employees, the infection of employees, diversion of delivery of stock as many countries close their borders or restrict travel in response to the virus and cancellation of flights. 

From an insurance perspective, the question to many businesses will no doubt be whether they are indemnified under their business interruption insurance policies for damages arising from the disruptions caused by Covid-19. Some of these businesses may discover that they are unfortunately not covered as some business interruption policies require that there must be underlying material damage to insured property to trigger the business interruption section of a policy. Due to the nature of Covid-19, most of the disruptions caused by its spread are unlikely to result in physical damage to insured property, with the result that some businesses may not be able to claim under their policies for business interruption. 

That said, some business interruption policies include extension clauses for infectious or contagious diseases which extensions do not require material damage as a condition to indemnity under the business interruption section. However, even some of those extension clauses are sometimes limited to a certain radius before the policy will respond. Some interruptions may be outside the specified radius, making it difficult to claim under the extension in the event it forms part of the relevant policy. 

The financial losses arising from the outbreak are likely to be felt for years to come. It will take a careful analysis of the relevant policies of a business to ascertain whether that business is entitled to indemnity under its policies for losses arising from the outbreak.