Business Interruption and Coronavirus

1. One of the many issues that is likely to arise out of the current Coronavirus pandemic is the extent to which an insured may be entitled to claim on a policy of business interruption insurance in respect of the closure or disruption of its business.
2. Business interruption cover is provided upon the occurrence of a specific insured event. The wording of each policy will, therefore, be critical.
3. Often, business interruption policies will provide an indemnity where financial losses are suffered by a business consequential upon material damage to property. Clearly, such policies will not provide an indemnity where businesses are affected solely by reason of the consequences of regulatory responses to the pandemic. However, an issue is likely to arise as to whether temporary contamination of the insured property will suffice.
4. Moreover, certain policies do provide cover independently of any material damage to property. Policies are available, for example, which provide cover against business interruption triggered by the outbreak of some forms of disease and responses to such disease. As with all business interruption policies, cover will depend upon the construction of the policy wording.
5. The leading case is the decision of the Hong Kong Court of Final Appeal in New World Harbourview Co Ltd v ACE Insurance Ltd [2012] HKCFA 21, [2012] 1 Lloyd's IR 537.
6. The issue in that case concerned the construction of two “Composite Mercantile Policies” issued by the Respondents, ACE Insurance Limited.
7. The Appellants owned a number of convention centres, hotels, car parks and other businesses. They made a claim on their policies and subsequently commenced proceedings to recover an indemnity in respect of losses sustained from interruption to their business caused by Severe Acute Respiratory Syndrome (“SARS”) in 2003.
8. Each of the policies contained a clause which provided that:

           “This Policy is extended to insure actual loss sustained by the Insured, resulting from a Reduction in Revenue and increase in Cost of Working as a result of murder, suicide, infectious or contagious disease, food or drink poisoning or                                  Contamination, and closure by a competent authority due to vermin or pests all occurring on the Premises of the Insured or of notifiable human infectious or contagious disease occurring within 25 miles of the Premises.”

9. Such clause thus provided cover against loss of revenue and increase in cost of working as a result of the occurrence of disease upon the occurrence of two separate events:
   • infectious or contagious disease on the Insured’s premises; and
   • notifiable human infectious or contagious disease occurring within 25 miles of the Premises.
10. The claim was brought under the second such limb.
11. The two issues before the Final Court of Appeal were:
    • “Whether, in common form and widely issued policies of the type in question, the provision of insurance cover in respect of loss sustained ‘as a result of notifiable human infectious or contagious disease’ is limited to cover losses resulting from infectious diseases which are by statute compulsorily notifiable or whether such cover extends to losses caused by diseases subject to administrative reporting requirements although not backed by statutory sanctions.”
    • “What is the commencement date of coverage under clause 14.5 of the Insurance Policies in respect of any claim made as a result of SARS?”
12. On the first issue, the Final Court of Appeal approached the issue of construction of the policy as it would any issue of contractual construction. On that basis, it held that “notifiable human infectious or contagious disease” meant an infectious or contagious disease that was required by law to be notified to an authority.  That was said to be most consistent with a reading of the contract as a whole consistent with a reading of the provision in question and provided “notify” with a clear and certain meaning.
13. On the second issue, the Final Court of Appeal held that the commencement date of coverage was the date upon which the disease became notifiable as a matter of Government ordinance. It followed that losses suffered by the Appellants from SARS prior to that date were not covered. Prior to that date the insured event had not occurred and the cover was not retrospective.
14. Further issues of construction may also arise in respect of exclusions contained within the policy and as to whether the proximate cause of the loss is the insured event or the excluded event. Suppose, for example, an employer chooses as a matter of caution to close down the business in order to protect its employees without regulatory obligation so to act.  In such circumstances would the proximate cause be the pandemic or the choice of the insured? With the relaxation of the lockdown in England and Wales the potential for such arguments will only increase.
15. Thus, subject to the wording of specific business interruption policies, there is potential for an indemnity against trading losses suffered as a consequence of Coronavirus. A careful consideration of the specific policy wording will be crucial.

Andrew Grantham QC

Kings Chambers