Insurance Law

Possible Insurance Lifelines for Struggling Business Owners as a Result of the Lockdown

Author: Jean-Paul Rudd

Several weeks into the lockdown, business owners and their workforce are experiencing the devastating economic impact of the crisis. With no end in sight, many of these businesses will sadly not survive the lockdown.

Business interruption insurance may, however, just be the light at the proverbial end of the tunnel these business owners are desperately looking for.

Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some specific reason, normally referred to as an insured peril.

Coverage
The following is typically catered for under a business interruption insurance policy:

  • Decrease in turnover or profit depending on the type of cover;
  • Increase in operating expenses;
  • A move to a temporary location if necessary;

Illustrative Example
A restaurant’s kitchen is ruined by a fire that started in the early hours of the morning. As the restaurant is dependent on the kitchen for normal operations, it is forced to close its doors. This means no income will be received during the repair period, but overheads such as rent, electricity, water, salaries and payments to suppliers remains due at the end of each month. If the restaurant does not possess business interruption insurance, it’s unlikely to survive the financial impact of the fire.

Does COVID-19 Qualify as an Insured Event Which Could Lead to a Valid and Enforceable Claim
In order to have a valid claim, business interruption insurance typically requires physical or structural damage to the premises from which the business is operated from. Disruptions caused by physical damage, like fire, flooding or vandalism are therefore normally covered under these types of policies. Often, these policies do not mention pandemics, although they sometimes include it as an exclusion.

It is, therefore, open to debate as to whether contamination of a property constitutes physical damage. Whereas South African Courts have not yet answered the question satisfactorily, the principle that contamination can in certain circumstances be viewed as physical damage has found some support in the United Kingdom and USA. Examples of where courts in different jurisdictions have held contamination of a building to constitute physical damage include:

  • Where a building was rendered non-functional because of an ammonia spillage;
  • Where access to a building was not possible due to gas fumes.

In both the United Kingdom and USA, various actions are currently pending against insurers who have declined to settle claims lodged against them on the basis that the Covid-19 outbreak has resulted in a loss of income. The arguments advanced on behalf of claimants range from the ingenious to the more traditional and include arguments such as:

  • The pandemic is a nationwide pandemic, and therefore all of the Nation’s property should be deemed damaged or infected;
  • Where a national state of disaster has been declared the policy should be interpreted restrictively to include losses as a result thereof.

The last word has certainly not been spoken in this regard.

Possible Lifeline
Businesses should look carefully at their ability to claim under “non damage denial of access” or “loss of attraction” clauses, which cover occasions when the policyholder cannot access the premises for reasons other than physical damage or suffers a loss of a specified attraction. If your business is forced to close or is told to close by a local authority/cordoned off, you may be able to make a claim under this extension. Business owners should, therefore, review their insurance policies to determine if they may already have coverage for losses stemming from COVID-19. Businesses, particularly those in the restaurant, hospitality and event industries, should critically review their policies to determine what coverage may be available.

What You Need to Do
Contact your broker and/or an attorney specialising in the field of insurance, to check whether your policy would extend to cover losses related to COVID-19.

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