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Why losses arising from ‘COVID-19’ not covered by standard business insurance

We are facing a crisis together as a nation, not as individuals, however isolating this may feel to us all at times. To all the NHS workers on the front line saving lives, we are indebted to you and pledge to do we can to assist in this silent war by staying at home to reduce the spread of the disease.

With so much confusion and bad press circulating, we wanted to clear a few things up and give you a better understanding of why a pandemic like COVID-19 is not covered by a standard business insurance policy. A pandemic affects such a large number of people if not all and if the insurance industry was cover the losses sustained by a nation, it would simply collapse in times like these which would be detrimental to the growth of our economy as it allows us to take risks we otherwise would be able to and provides individuals peace of mind knowing their assets and liabilities are covered.

The focal point of ‘cover’ is an extension of ‘Business Interruption’, which will pay for loss of income in event your business suffers a physical damage loss, like a fire or flooding etc. When an insurer is assessing a risk and setting a premium, it is based on these physical damage losses to the insureds premises only.

Insurers, like any other business try and differentiate from one another, and so they start adding in tightly drafted extensions of cover like ‘Unspecified Suppliers’ (this covers an unavoidable downturn in income as a result that a supplier sustains a physical damage loss at his premises). When i say ‘tightly drafted’ I am referring to the specific wording used that means it has to meet stringent criteria before insurers will accept any liability which is often capped with inner limits of say £25,000 or £50,000.

The extension in question here is the ‘Infectious Diseases’ one which unlike the rest of the cover, has a ‘non-damage’ trigger meaning that a physical loss does not have to occurred to set the wheels in motion. It is principally designed to cover a specific isolated occurrence at either the insureds premises or within a certain radius that causes a direct and measurable loss as a result of that occurrence which often forces the business to close and undergo a deep clean etc. Since the SARS outbreak in 2003, the vast majority of insurers specify the diseases that cover is provided for (as COVID-19 new, it will not be listed and therefore not covered from the outset).

For those few insurers that don’t specify and cover ‘Notifiable Diseases’ as defined by the Health Protections (Notifications) Regulations 2010 , due to the ‘widespread’ nature (i.e. since becoming a pandemic and occurring nationwide) of the occurrence, the difficulty now comes in establishing ‘causation’ (the identifiable ‘COVID-19’ occurrence) and ‘measurement of loss’ (the amount) which is directly attributable to the occurrence in question which we expect will be contentious.

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Commer House, Tadcaster, LS24 9JF

Johnson Insurance Services is a trading name of Johnson Insurance Services Ltd which is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference no. 784664. Johnson Insurance Services Ltd is registered in England & Wales no. 10822509 at Commer House, Tadcaster, North Yorkshire, LS24 9JF