COVID-19 and Business Interruption Insurance



The novel coronavirus, now officially named COVID-19 by the World Health Organisation, has become a global pandemic. Nearly all sectors of business in Asia are significantly affected, ranging from hospitality, entertainment, tourism, food and beverage to supply chain and logistics. Insurers are bracing themselves for a busy year ahead as claims in medical and life insurance, event cancellation insurance and travel insurance surge. We also expect to see a rise in claims and related litigation arising out of property and business interruption policies as business owners scramble to save jobs and stay afloat.

Business interruption policies typically cover the loss of income suffered by a business caused by an insured peril which falls within the scope of the policy, and they vary significantly from policy to policy. They are usually bought together with property insurance or can be obtained as a stand-alone policy. Common losses covered by such policies include costs associated with temporary closure of a business, such as costs of setting up off-site offices, fees for crisis management specialists, and net profits that would have been earned had the peril not occurred.

Historically, insured perils under such policies would typically include natural disasters or property damage that leads to interruption of a business. In recent years, due to a surge in cybercrime, policies tailor-made to deal with interruption to businesses resulting from cyberattacks are widely purchased by businesses, particularly in the financial sector.

As for communicable diseases, in 2003, a Hong Kong-based hotel group recovered millions from its business interruption insurer following the Severe Acute Respiratory Syndrome (SARS) that devastated the Asian economy. However, in a separate case that went all the way to the Court of Final Appeal, the insured hotel could not recover losses arising from SARS suffered prior to the relevant notifiable date, which was determined to be the date that an infectious or contagious disease was required by law to be notified to an authority.1 COVID-19 was included in the Prevention and Control of Disease (Amendment) Regulation 2020 and the Prevention and Control of Disease Ordinance (Amendment of Schedule 1) Notice 2020 as of 8 January 2020. This date could have a significant impact on the “trigger date” for a relevant insurance policy. Following SARS, the insurance industry was quick to exclude losses caused by communicable diseases from their policies. Bespoke policies or specifically negotiated extensions were required to cover losses arising from such diseases.

Business owners who have purchased insurance policies will need to examine their policy wording (including any express exclusions) to determine whether any losses arising from COVID-19 are covered. The cause of such loss must also be carefully considered; temporary closure of business premises may not always be covered if it is not required by the Government.

The insurance industry is undoubtedly preparing itself for the inevitable litigation that will ensue from the economic disruption caused by the virus. Having said that, COVID-19 also presents a unique opportunity for insurers to consider new products designed specifically to deal with losses arising from similar outbreaks going forwards.

The Asian economy has demonstrated its tenacity, having survived through SARS in 2003 and the global financial crisis in 2008, it will undoubtedly recover, perhaps before COVID-19 is over.

  1. [New World Harbourview Hotel Co. Ltd & Ors v ACE Insurance Ltd & Ors [2012] HKEC 264]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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