The COVID-19 outbreak has had a volatile impact on all aspects of business activity, making businesses more vulnerable. Businesses will now have to pay more attention to their Business Interruption (BI) insurance in order to determine if their losses can be covered. A BI policy protects a business from losses when the business is unable to operate. Usually, BI claims arise from property damage. For example, a fire that causes a restaurant to close for repairs would enable the restaurant to submit a claim to their insurer under its BI policy.
Whether COVID-19 constitutes a disaster under a BI policy is determined on a case-by-case basis and depends on the specific wording of the policy. Some BI policies specifically cover losses arising from a pandemic; however, these policies are costly and therefore rare. Common business losses may have been sustained where a workplace or workforce were required to quarantine or a government lockdown due to COVID-19 and the business was unable to continue operations.
Important consideration should be made to the exclusion clauses contained within the policy. Since the SARS outbreak in the early 2000s, many exclusions include losses sustained from viruses and diseases. It is therefore essential to consider the type of BI cover held by a business prior to raising a claim.
When raising a claim, a business will be required to evidence the losses sustained. Therefore, it is advantageous for businesses to have maintained a record of all losses occurred throughout their operations, especially those which can be directly attributed to Covid-19. It will also be helpful for businesses to document any loss suffered due to supply chain disruptions, as these may be covered by Contingent Business Interruption (CBI) insurance.
On 15 September 2020, the High Court in London handed down a particularly important judgment on this topic. This was a test case commenced by the Financial Conduct Authority (FCA), which regulates the insurance industry in England, and the case was filed against eight leading insurers. The FCA represented the interests of policyholders and the High Court evaluated over 20 sample wordings of BI policies.
The judgment is complex and deals with many issues; however, the High Court decided in favour of policyholders that the sample policies do provide BI cover for COVID-19. It is important to note that this case might be appealed. More importantly, this is an English court judgment and has no legal effect in the UAE. That said, UAE businesses have an advantage in claiming for business interruption from their insurers for several reasons.
First, due to the nature of the insurance market in the UAE, BI policies in the UAE will have remarkably similar, if not identical, wording as those policies reviewed by the High Court. Second, insurance policies in the UAE are governed by UAE law and subject to the jurisdiction of the UAE courts. UAE insurance law and the UAE courts usually lean in favour of policyholders in circumstances of ambiguity found in policy wordings.
It is extremely important for businesses that have suffered interruption to their operations to obtain legal advice from expert insurance lawyers as a matter of priority as all insurance policies will have stringent notification requirements which could have an effect on a policyholders’ ability to claim.
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