COVID-19: Issues Around Insurance Cover for Business

The key question now for business - Do we have insurance cover for losses arising from COVID-19?

Many businesses have already felt the financial impact of COVID-19 and will be looking to their insurance cover to see whether these losses can be recovered. There are certain steps that a business should take to best position itself for a positive outcome.

As a first step, the business should clarify if it has any relevant insurance cover that might cover losses sustained by it as a consequence of the current crisis. For example, this might be in the form of business interruption insurance or insurance for event cancellation, that is itself contained in a wider form of cover/insurance policy. Another option is credit insurance which protects the insured against the risk of non-payment or bad debts.

In particular, in the case of business interruption or event cancellation, it will be essential to ascertain whether these particular circumstances in fact trigger the cover provided under the relevant policy. Businesses faced with such eventualities will have to tread carefully when making decisions here and policy wording will be crucial. A critical consideration will be where customers have been advised to stay away or where a recommendation has been made, but no express order for closure has been given. This will bring in to stark focus the ability of businesses to claim against the responsive sections of their business interruption insurance policies. While entertainment and hospitality enterprises are expected to be hit particularly hard by the current crisis, many business are likely to face this and similar issues under their policies. A key battleground between Business and Insurers is likely to be around the form of closure direction from Government and whether business interruption policies are triggered in those circumstances.

In the case of credit insurance, the reason for the non-payment needs to be examined. Was there actually an obligation on the debtor to pay the insured or could a force majeure clause in their contract have come into play releasing the debtor from that obligation?

Potential cover exclusions will also need to be examined. These may prevent a claim for cover for losses arising in a particular situation or alternatively, certain types of losses may be excluded.

If there is a potential insurance claim, insurers will need to be informed in time and any other requirements under the policy should be adhered to. There may be a need to mitigate loss under the policy. A business should examine any such provisions carefully and take any necessary action,  always bearing in mind that it may be prudent or a requirement that  insurer consent be obtained in advance and prior to  specific action. It is important to note that cover may be excluded where policy requirements relating to notification and loss management are not complied with.

Finally, good record-keeping is essential at each stage of the process to avoid future disputes and also to document why certain steps were taken and why these were appropriate at the time.

Given the scale of the current crisis, there will inevitably be disputes in and around insurance cover over the coming months and a rise in related litigation is expected. Careful and considered steps taken now by business can help to maximise the prospect of recovery under an insurance policy and minimise exposure to expensive and time-consuming follow-on litigation.

How can we help?

The Disputes Group at McCann FitzGerald can assist organisations in addressing their concerns in and around insurance cover and can also advise on the wide range of regulatory and litigation issues business may face in responding to COVID-19. Alternatively, your usual contact in McCann FitzGerald will be pleased to provide further information.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.