Would Your Business Benefit From Business Interruption Insurance?

When the disruption of your business happens through fire, theft, a pandemic, or other circumstances of property damage, and escalates beyond immediate damage, it enters the sphere of “business interruption insurance”.

So, what to do if your business could be hurt? What should happen if you can’t trade until the issues are fixed? Business interruption insurance is designed to answer this question and protect your income and ensure that you can pay bills and maintain relationships with your customers and suppliers.

What Business Interruption Insurance Covers:

• Lost profit. Based on the results of the previous months, a refund of profits would have been generated if the event did not happen.
• Fixed costs. The policy covers operating expenses and other incurred costs of doing business.
• Temporary location. Some policies cover the cost of moving to and working from a temporary business location.
• Commissions and training costs. After an interruption, it is often necessary to replace equipment and retrain staff. Business interruption insurance can cover these costs.
• Additional funds. Business interruption insurance can return reasonable funds over and above the fixed costs to enable the business to continue operating while it gets back on solid footing.
• Government-mandated closure. A business interruption event could cause the closure of businesses by government order, leading to direct financial loss. For instance, forced closures due to government curfews or street closings due to a closed event.
• Employee payroll. Payroll coverage is essential if you do not want to lose employees. This coverage can help the business owner with payroll when he is unable to do so.
• Covering taxes. You are still required to pay taxes even in the event of natural disasters. Tax coverage will help to pay taxes on time and avoid fines.
• Loan payments. Such payments are often made on a monthly basis. Business interruption insurance can help you make these payments, even if you are not generating income.

What Business Interruption Insurance Usually Does Not Cover:

• Items that are broken as a result of an insured event or loss (for example, glass).
• Flood or earthquake damages as these are usually covered by a separate policy.
• If you had undocumented income, not listed on your company’s financial statements it wouldn’t be returned by this policy.
• General effects of pandemics, viruses, or infectious diseases (e.g. COVID-19).

The insurer is only required to pay if the recipient has actually suffered losses as a result of the listed interruptions. The sum of funds that could be reimbursed for business can’t be bigger than the limit stated in the policy.

Insurance Changes During Pandemic

Usually, in the case of pandemics, insurance is not expected to be covered. Fortunately, the U.K. Supreme Court has handed down a judgment that will change the insurance coverage for Covid outbreaks.

Until the Supreme Court’s judgment, viruses didn’t actually break anything. But after the successful case, we hope, things will change.

What’s more is that there were some law exceptions in all-risk insurances.  They started in the 2003 SARS outbreak and those exceptions tend to include damage from viruses and infectious diseases.

Business interruption insurance reimburses policyholders for costs associated with events that result in a serious disruption of operations. The coronavirus pandemic has generated many claims, as well as controversy, over the extent to which the policy covers (or is expected to cover) losses.

Requirements for Government Action

Many businesses expected the new coronavirus to be declared as a notifiable disease due to the order for businesses to close. They expected this to enable them to file claims under the business interruption policy. And, as we remember, the government declared Covid-19 a notifiable disease on 5 March 2020 and advised most of the businesses to close from 16 March.

The Importance of Policy Statements

However, the insurance industry claims that only a few policies can provide coverage even if the government forces businesses to close. Over the past decade or so, insurers have changed the formulation of policies to rule out diseases not explicitly named.

The government and industry encourage you to refer to specific policy statements. 

Disputes and Lawsuits

Many insurers say that the language in their policies is unclear or appears to be open to claims, even though their insurers have argued otherwise. Small businesses can complain about this to the Financial Ombudsman Service (FOS).

The Financial Conduct Authority (FCA) said that few policyholders are likely to be covered. As we mentioned earlier, the Supreme Court ruled in September 2020 mostly in favour of the policyholders. This happened again following an appeal in January 2021.

Summary: What Should We Expect for the Future of Business Interruption Insurance?

While exploring the interruption policy disputes, we noted that the scale of the violation is that the insurance industry will not be able to cover the losses anyway. Different experts argue that this may be the case where the state should take responsibility. Otherwise, at least, we should strive for public-private partnerships.

Business interruption insurance is not sold as a separate policy but is an addition to your existing insurance policy. So, be careful and take the solicitor’s advice before signing such a statement.