Ireland’s recently introduced Covid-19 lockdown restrictions have thrown a spotlight on business interruption insurance. The purpose of this type of insurance is to protect against loss of income where a business is unable to carry on as normal due to an unexpected event or disaster.
While not all businesses have business interruption insurance cover, many of those who do understandably want to claim compensation for the losses they have incurred due to the Cover-19 pandemic. However, some insurers are refusing to pay out, citing reasons such as that pandemics are not included in cover for man-made or natural disasters. Some policies may contain virus exclusion clauses (these clauses are more common since the SARS virus outbreak). Another potential issue is that there may be a question over whether the presence of Covid-19 in or near a business can be categorised as physical damage. It is likely that this question will ultimately have to be decided by the courts.
Ordered to close
Pubs are just one group among thousands of businesses who have lost their income due to having to close their doors during the lockdown. A recent SME liquidity study by Niall McGeever, John McQuinn and Samantha Myers (Central Bank, April 2020) suggests there are approximately 96,000 firms in the affected sectors. Some of these businesses may be able to claim compensation if their insurance policies provide cover for losses incurred where civil authorities order businesses to close.
Although there was a question mark initially over whether the Irish Government’s ‘advice’ could be considered an order to close, clarity emerged in a recent Insurance Ireland statement (10 April 2020), which said, “Insurers agree that the Government advice to close a business in the context of Covid-19 is the same as a direction in this instance and will be recognised as such. It is important to note, however, that each policy is different and there may well be other factors which lead to the adjudication of whether a claim is valid or not.”
Another concern for business owners is that they could face legal action themselves due to the Covid-19 pandemic. The Irish Times recently reported (22 April 2020) that 5,000 people who tested positive for Covid-19 after returning home from an Austrian ski resort earlier this year have registered for a class-action lawsuit. Elsewhere, in Canada, lawyers are reportedly warning sectors such as seniors’ care homes to be wary of potential Covid-19 class action suits. One such action, recently filed in Canada and yet to be tried in court, concerns a government-run care home which allegedly failed to implement government-mandated protocols to isolate patients and protect workers. Cases such as these are likely to be watched closely by businesses who survive the current lockdown.
Furthermore, although many businesses are losing money due to the current restrictions, re-opening once the pandemic subsides will not be without risk. Business owners worry that they could find themselves facing personal injury claims if their customers or staff contract Covid-19.
Pressure on insurance industry from law makers
Rejection of Covid-19 business interruption insurance claims is not unique to Ireland. Globally, law makers are seeking to apply pressure to ensure insurance customers are treated fairly. Several US states have put forward proposals forcing insurers to accept business Covid-19 claims, even if policies exclude pandemics.
Closer to home, Minister for Finance and Public Expenditure and Reform, Paschal Donohoe recently emphasised his concerns regarding the response of insurers to the Covid-19 crisis in a teleconference call with Insurance Ireland (17 April 2020). Although he acknowledged various Insurance Ireland clarifications regarding business interruption insurance—in particular that where there is ambiguity in a policy insurers will interpret it in favour of the consumer—Minister Donohoe expressed concern that some insurers have adopted a blanket rejection of all business interruption claims and are not treating customers fairly.
There is speculation that rejection of business interruption insurance claims could lead to a deluge of court actions once the pandemic abates. It remains to be seen when that will be. For now, if you need help understanding your policy, or if you are affected by any of the issues discussed in this article and would like further information or advice, please get in touch.