We are all too aware that COVID-19 has had catastrophic financial effects on many Irish Businesses. The first place companies should look to is their specific insurance policy to ascertain if they actually have cover for the financial losses incurred as a result of the COVID-19 disruption/interruption.
Insurance cover – general
In general insurance indemnifies you for the unexpected. The basic concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event. The other party, the insured or the policyholder, pays a premium to the insurer in exchange for that protection on that uncertain future occurrence.
In basic terms, insurance policies are contracts. They are defined in scope and breadth and are designed to cover losses arising in a specified set of circumstances. All insurance policies include strict terms and policies and you, as a business and policy holder must familiarise yourself with them.
Insurance documents are specific and it is important that you read the detail provided in the policy terms and conditions. Insurance does not provide a financial safety net to cover losses which are not specified under the policy.
On examination, the majority of policies clearly indicate in terms of what is or is not covered for the purpose of business interruption.
Different types of cover
The insurance industry is made up of different types of insurance companies offering their services in different areas. It is generally broken into life and non- life policies.
Businesses require special types of insurance policies that insure against specific types of risks faced by a particular business. For example, if your business is closed because of a pandemic you will suffer financial loss. You will first need to check if you have business interruption cover and what actual cover you have for possible eventualities, such as pandemics.
There are also insurance policies available for very particular needs, such as kidnap and ransom, medical malpractice, and professional liability insurance. Even here, strict terms and conditions apply and if you are found to be reckless, exemptions may apply.
Business interruption cover
In general, business interruption insurance covers losses incurred by a business as a result of a disruption caused by an “insured peril”. This type of cover generally requires an element of damage to property, for example fire, flooding, structural damage or storm damage.
What you will be looking for is whether the “insured peril” in your policy covers a virus. The policy wording will point to what is covered. Some more specific policies may expressly cover losses caused by communicable or infectious diseases. On the other hand some policies specifically exclude business interruption cover for a virus on a global or local scale. The risk can be unquantifiable and impossible to cover.
The Irish Central Bank and COVID-19
The Central Bank has issued a number of statements in respect of how regulated insurance firms should treat businesses in light of the significant economic disruption caused by the COVID-19 public health emergency.It has communicated with the insurance companies requiring them to take account of the challenging situation in which many businesses find themselves and has put forward consumer-focused solutions for insurance payment breaks, policy rebates and claims in light of the emergency.
In relation to insurance claims, the Central Bank stated in June 2020, “ firms must ensure that any settlement offer made to you is fair, takes into account all relevant factors and represents the firm’s best estimate of your reasonable entitlement under the policy. Firms must ensure that they handle claims effectively and properly. Although we expect that most policy wordings are clear in terms of what cover is provided and what is excluded, where there is a doubt about the meaning of a term, the interpretation most favourable to you should prevail. Firms must ensure that claims are appropriately assessed and where there is insurance cover in place that your claim is accepted and paid promptly”.
Where a claim is made because a business has closed as a result of a Government direction due to contagious or infectious disease, the Central Bank is of the view that that the recent Government advice to close a business in the context of COVID-19 should be treated as a direction. This is a view that has also been set out by the Minister for Finance, Public Expenditure and Reform. Firms must ensure that claims are appropriately assessed and where there is insurance cover in place that claims are accepted and paid promptly.
Importantly, in March 2020, The Central Bank of Ireland advised insurance companies that the interpretation of any ambiguous clauses surrounding policy cover for COVID-19 related claims should be read in favour of the consumer.
This has been interpreted in some commentary as a new concept, however it simply reaffirms the long standing rule of contra proferentem. This simply means that insurers have always been obliged to interpret ambiguous terms in favour of the insured.
The Central Bank has also requested insurers to submit detailed breakdowns of their business interruption policies including details of how policies with ambiguous language are being dealt with.
The above is intended for information purposes only, and is not intended to be relied upon as legal advice. Please contact us on 01 -676 3257 for advice specific to your needs. We, at Fitzsimons Redmond LLP, would be delighted to work with you and your business in determining if your policy includes business interruption arising from COVID-19.