Business Interruption Insurance In light of the COVID-19 Pandemic
Due to the global spread of the pandemic of COVID-19, social distancing, stay-at-home orders, quarantines and lockdowns of entire economies are a part of daily life. As the economic and social activities of Kuwait and nations around the world have come to a grinding halt, many businesses have either already shut their operations or are at the verge of it, and the worst is yet to come. It is unlikely that any big and small businesses alike will come out of this pandemic that has wrecked havoc, unscathed; therefore many are referring to their insurance policies to understand the extent of the risk coverage in their respective policies.
In this reasonably predictable world, the insurers offer policies to cover the losses of the insured for the causes that are relatively predictable, to a limited audience, as it is a hedge against the losses. But when claims fly off the actuarial charts, i.e. when hundreds of billions of dollars in claims from the majority of holders of insurance could potentially impact the entire industry, insurers get defensive, claims are denied, and legal battles begin. Today, insurers are faced with a slew of business interruption and other claims relating to COVID-19 shutdowns, social distancing, and government orders, particularly from hospitality, manufacturing businesses, retail shops etc. which have been most affected by the crisis.
Many insurance policies and endorsements cover losses due to “business interruption”. Res ispa loquitor, or as the fact speaks for itself, COVID-19 has enormously affected businesses in Kuwait and almost every nation on the planet. However, the real question is whether or not, the pandemic of COVID-19 shall be regarded as a business interruption, thereby entitling the insured for the claim. Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization or business entity due to a slowdown or suspension of its operations at its premises, typically under circumstances where “physical damage” to the property is caused.
Therefore, the real question is whether or not insurers regard coronavirus to be “physical damage”, since the business interruption needs to be tied to a direct physical loss or damage to property, which requires a tangible change in physical property and the same is not a cakewalk. But some creative and persuasive arguments the lawyers of the insured may likely advance that such damage has occurred, for instance, via some forensic tests illustrating that there is physical viral contamination to premises. Hence, in the cases of ambiguous and widely-worded policies, it is onerous to successfully persuade the insurers to cover the losses. Insurers seem to have learned from the past lessons of previous outbreaks like SARS.
Some policies expressly exclude the pandemics and virus-borne losses from its ambit of business interruptions (even if they are “All Risk” policies), whereas others either expressly include such pandemics or they may be specifically purchased to cover such pandemics. Thus, it is advisable that the language of the policy must be closely examined and analysed. In pursuance of this exercise, the certified copy of entire policy that contains exhaustive provisions, must be obtained from the insurer. It is barely surprising that scores of insurers have denied the claim requests and have sought to absolve themselves of any liability finding resort in the ambiguous language of the policy. Nevertheless, it is just the beginning of the war.
– Attorney Faten Alnaqeeb