Overview of Business Interruption Insurance31 March, 2020
We are living and operating in unprecedented times with unprecedented measures being implemented by the Government. As a result it is incumbent upon business owners and operators to consider their policies of insurance to ascertain if coverage exists for events which directly affect and impact the business.
Companies and businesses whether large or small will have policies of insurance for certain aspects of the business. Be it insurance cover for Employers Liability, Public Liability or for Buildings and Contents insurance. That is indemnification subject to policy conditions for any liability which might fall on an employer for actions, errors or omissions by members of the business which may cause an injury or damage to other staff members. Similarly Buildings and Contents cover is an insurance which protects against damage or destruction to the building(s) within which the business is located. It will also cover damage and destruction to the contents of the business premises such as machinery, computer systems and replacement of furniture etc. Buildings and Contents Insurance is normally triggered by damage to the premises and/ or the contents of the building
Within Building Insurance policies there are defined covers provided such as business interruption cover. At its simplest business interruption can be described as insurance cover to meet loss of income the business may suffer as a result to damage to property. That is to say that business interruption normally flows from damage to the insured premises.
Such policies are constructed to provide headline cover for the building be it reinstatement or replacement costs. This will be the maximum amount of cover available under the policy. The policy limit of cover.
Within the limit of cover and depending on the nature of the cover purchased, there may well be extensions to the cover. That is the primary cover of the policy relates to the reinstatement or market value of the subject premises insured. However, if the premises suffers property damage other events can occur such as relocation of the premises in the short term, closure of the premises, interruption or cessation of the business/ production. This is a follow on from serious property damage and can be provided for in the Buildings Insurance policy. Such extensions of cover can attract the same policy limit of cover as the building or more often a sublimit of cover within the main amount. That means that closure of the premises or interruption of production can cause an insurer to provide a cover.
A sublimit of cover will be for a definitive amount( normally less than the amount of cover for the premises) and for the occurrence of specific events. These can be;
Public Authority direction on closure
Human infectious and contagious diseases
Such covers normally flow from material damage to the property. The policy will define the meaning of material damage. Thereafter, the insuring clause of the cover being provided will outline how such insurance comes into being and what events must occur for the cover to be triggered.
Principally there has to be material damage to the property and then one of the covers within the business interruption suite of extensions will also apply. There are one or two exceptions to this. They are human infectious or contagious diseases and non-material damage denial or access or closure due to public authority direction.
It is imperative to look at the sublimit covers within your Business Interruption policy. Normally an outbreak of infectious diseases or contagious diseases must have emanated from the insured premises but given current Government directions such a qualification to cover may not apply.
Each policy of insurance is bespoke and a contract between insurer and policyholder. No two policies are the same. It is important to review your policy and covers purchased to ascertain if there is business interruption cover in place.
We are happy to review your policy and advise on whether you have appropriate cover with your insurance provider.
This note is for general information purposes Legal advice must be obtained for all individual circumstances. While every effort has been made to ensure the accuracy of this note, no liability is accepted by the author or Flynn O’Driscoll for any inaccuracies.
About The Author
Prior to joining Flynn O’Driscoll, he was a partner in a specialist Dublin law firm dealing with Plaintiff and Defendant insurance litigation and the provision of Insurance policy coverage advice…….