Business Interruption Insurance (BI)/Additional Increase Cost of Works (AICOW)
During this COVID 19 outbreak and country shutdown the insurance item that has gotten the most coverage is Business Interruption Insurance, and how policies with infections disease extensions respond in relation to events that trigger this cover.
What is Business Interruption Insurance?
The primary idea behind insurers providing Business Interruption covers was that the policy cover would kick in following the occurrence of some damage to property at the insured business premises by an insured peril like Fire, Flood, Storm etc. The trigger for a business interruption cover to be involved in a claim would be that there would have been some claim under the property damage section of the policy that has caused the interruption to the firm’s business.
Some Business Interruption/Additional Increase Cost of Works policies have an extension that might be headed “Infectious disease outbreak” extension. This extension is intended to give some Business Interruption cover for an event that didn’t strictly follow damage to the property at the insured premises – for example ‘infectious disease’.
Usually, if this extension is given it will have a lower limit than the general business interruption cover and a shorter indemnity period.
There are many variations in the marketplace of these extensions and there are as many interpretations of what triggers the covers. Some policies mention that there must be a specific named disease outbreak at the premises, whilst others look to exclude certain specific strains of certain diseases from the cover given. In addition, there are some policy covers that don’t mention any specific disease being covered or excluded, but the insurers would rely on the fact that it must be proved that the disease outbreak occurred at the insured business premises.
In general, the issue that is leading to most argument and debate currently is that policy wordings will generally outline that cover only applies where there has been an outbreak of the disease or discovery of the virus that causes it, at the insured business premises and as a result of the specific outbreak at the premises that the business has been forced to close by order of a specified governmental authority (which for each policy/ insurer the specific authority will differ).
What is being done to resolve the disputes around insurer interpretations?
A number of industry representative groups have engaged experts and legal advice to challenge insurers’ interpretations of these wordings. The Central Bank, as regulators, have been very clear that insurers must give the client the benefit of the doubt where any wording is ambiguous or unclear.
The situation that is playing out here is also playing out across the globe as far as Business Interruption Insurance is concerned. Therefore, an insurer that is part of a multinational insurance group here will be unlikely to take any different view on policy interpretation here than, for example, its UK or US parent, as a decision in one territory can have knock-on effects for all companies in a group.
A positive development in the playing out of the Business Interruption interpretation of covers argument is that the Financial Conduct Authority (FCA) in the UK has very recently advised that it will seek clarity from the courts over the insurance rights of companies whose business has been disrupted by the Covid-19 pandemic. Although the Financial Conduct Authority is of the view that most claimants on business interruption policies do not have the right coverage to warrant a pay-out, it is seeking a fast-track court declaration to “resolve uncertainty for many customers making claims”.
What does this mean for me?
The FCA is taking key test cases to court that provides the “greatest clarity” on specific policy clauses that represent those most frequently used by insurers which have been disputed by businesses who have been rejected for a pay-out. Although this is a UK action it is likely that results of these cases would likely have an influence here on the way that certain Business Interruption cases are dealt with by insurers.
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