Business Interruption and Insurance Policies

Ruth Hereward Solicitor OBL Solicitors

This Century has seen remarkable events but the Covid-19 crisis is unsurpassed in living memory drawing many comparisons with those who recall World War II.

In recent days the UK has performed a U-turn policy from the herd immunity position to complete lockdown.  This hopefully will avoid the macabre and depressing footage that we are seeing emanating from various Mediterranean Countries.

In the Republic of Ireland the cumbersomely titled Health (Preservation and Protection and other Emergency measures in the Public Interest) Act 2020 was signed into law on the 20th March 2020. Such provisions providing significant prohibitions and restrictions of common everyday events with accompanying powers of detentions would have been thought unimaginable at the commencement of this calendar year.

In these highly unusual times businesses across the Country are being directed to close and all interested parties appear to be buying into the “we are all in this together” mantra.

The question regarding Insurance Coverage for Businesses is now highly significant and topical.

Businesses, Brokers and Lawyers are urgently reviewing policies against a backdrop never previously imagined.  The Political establishment is calling on various Central Banks to issue guidance for insurers who are refusing to compensate businesses for business interruption. This populist grand standing does not take account the legal nature of coverage provided in such insurance policies and the contractual obligations that flow from same.  The viability of insurers could not withstand the types of suggestions being proffered by political and other various sources.

Most businesses take out insurance cover to protect against business interruption losses. These are normally in conjunction with Employers and Public Liability policies envisaging a situation where a business cannot operate often due to a catastrophic event such as a fire or a flood.  A defined period of the business being closed during reinstatement works is normally clear unlike the current situation and the uncertainty we are encountering.

Insurance policies for the hospitality sector will be particularly interesting on whether they respond to “notifiable” infectious diseases. It is noted that the Covid-19 crisis has been officially characterised as a Pandemic as of the 11th March 2020 and had been a notifiable disease for a period in advance of that.

Lloyds of London announced recently that they would “pay out” on claims (subject to the usual investigations) for business interruption where there is either a specific notifiable disease or Pandemic extension.  This will have a significant impact on the bottom line for the insurance industry and is an unanticipated major shock.

Insurance policies must be examined on a case by case basis in light of the particular circumstances a business faces and the terms contracted to between the parties.

Many insurers are currently refusing indemnities for the usual reasons that arise in regarding to infectious diseases where policies specifically exclude or limit coverage. There will be a plethora of legal disputes regarding whether business closures were mandated by law and specifically when.  The Pandemic itself as it has manifested itself almost fits perfectly into how one would view “force majeure”. The world economy is grinding to a slow halt in the face of a widespread Pandemic.

There will be many legal challenges against insurers and brokers for some of the above reasons by way of Arbitrations and legal proceedings. At the time of writing we are at the infancy of the crisis in Ireland with the much feared surge yet to arrive.  The consequences for the insurance industry are enormous and will have reverberations for many, many years to come when this crisis has come to pass.

For further information, please contact the author Ruth Hereward ([email protected]) or Mary Byrne ([email protected])