Will my insurance cover damage caused by coronavirus? Read the key points about interruption and epidemic insurance in this article
Insurance policies will not pay out to a business if customers stop coming out of fear of coronavirus or if all the restaurants in the country are closed. What does business interruption insurance and epidemic insurance usually cover?
Briefly, and in general terms, we can state that interruption insurance covers normal damages to property, hardware breakage, illness, accidents, and the profit losses they cause the business. Businesses in the food sector can receive compensation from epidemic interruption insurance when an authority orders premises to be cleaned or disinfected.
Epidemic insurance does not pay out following the government’s order to close almost all restaurants. However, if an individual restaurant or hotel were closed because of coronavirus infection, it would be covered by insurance.
Karoliina Katila, a specialist at Suomen Yrittäjät, says, “The number of insurance policies that will pay out because of the coronavirus crisis is unfortunately very small. What’s more, anyone who receives insurance payouts will find them quite limited, as they’re generally designed to cover up to a week of business interruption.
“The amounts paid out are relatively small, because the insurance is intended to compensate situations where the business can be quickly restarted following machine breakage, cleaning, disinfection or other such measures,” Katila says.
Business insurance policies are usually very tailored to the policyholder. They vary not just by insurer but also by policy from the same insurer. That means that each compensation decision must be made individually.
General information about business interruption insurance
Interruption insurance usually covers normal damages to property, hardware breakage, illness, accidents, and the profit losses they cause the business. Interruption insurance compensates for financial damage caused by an interruption. Such an interruption must be caused by material damage mentioned in the terms of the policy, such as a fire or machine breakdown.
“Basic interruption insurance does not cover damage caused by coronavirus, as it is not damage to property that interrupts business operations,” Karoliina Katila says.
You can add extra coverage to an interruption insurance policy by taking out an epidemic interruption policy.
Epidemic interruption insurance
Epidemic interruption insurance is primarily intended for businesses in the agri-food and catering sectors. If an authority orders the closure of restaurants in the entire country or a certain area, for example, the policyholder is not compensated. Epidemic interruption insurance covers damage when an authority orders the closure of premises for cleaning and disinfection to prevent the spread of an infectious disease. In practice, that is done in cases of salmonella and norovirus.
Katila says, “Epidemic interruption insurance generally compensates for cleaning and disinfection costs of property and premises, the value of property ordered to be destroyed, and profits lost by interruption of business operations.
For the policyholder to receive compensation, the costs must be a direct consequence of an order given by the authorities under the Communicable Diseases Act to limit the spread of infectious diseases. This is used, for example, to limit operations with a closure order for a specific building or premises.
As a general rule, epidemic insurance only compensates for interruption to business operations specifically due to an official order concerning the business activities and its insured premises.
If the authorities order a business’s insured premises to be closed and cleaned because of a detected coronavirus infection, the business may receive compensation to the extent laid out in the insurance terms.
We asked Fennia, LähiTapiola, OP Pohjola and If about the coverage their policies would provide in the situations below:
1. Will the insurance policy pay compensation if customers vanish and cashflow dries up?
2. Will the insurance policy pay compensation if a business partner cannot deliver components and my company cannot then supply finished products?
3. Will the insurance policy pay out if my company has to cancel an event?
This is how the insurers responded:
- The insurance policy does not compensate for damage caused by people’s voluntary changes in behaviour, such as changes in consumption of goods and services. Epidemic insurance covers costs for cleaning and destruction of the insured property. It also covers cleaning costs for a building or premises in a building used for the insured business activities.In addition, property interruption insurance, included in Fennia’s epidemic coverage, covers interruption to business which is a direct consequence of the aforementioned material damages.For the claim to be paid, these damages must be a direct result of an official, compulsory order. This order must, on the basis of the Communicable Diseases Act (1227/2016), limit the spread of infectious diseases and, in consequence, the policyholders’ operations (such as a closure order for premises). The order must also be for the specific building or premises named in the insurance policy.
- Contingent business interruption insurance compensates for interruption damage. Such damage must be caused by significant, insurable material damage to the business partner named in the insurance policy. This could be hardware breakage or a fire which prevents the partner from being able to deliver the components ordered, nor can the components be sourced elsewhere.
- The insurance does not compensate for interruption to business caused by official measures to minimize spread of diseases such as limiting public events, closing public spaces and limiting travel to and from epidemic areas.
- The insurance does not compensate for loss of customers as a consequence of the pandemic or official cautionary measures.
- The insurance policy does not pay out in a situation where coronavirus prevents a subcontractor or business partner from delivering components. If a business has contingent business interruption insurance, the insurance policy only pays out when the disruption to operations is caused by damage to property, such as a fire.
- When an event is cancelled in an effort to prevent the spread of a pandemic, the business interruption insurance policy does not pay out.
- The insurance policy will unfortunately not pay compensation if customers vanish and cashflow dries up. This is a state of emergency. Epidemic interruption coverage pays out if the authorities decide, for example, that a hotel must be closed and quarantined because of coronavirus. Claims are also paid if something has to be disinfected or destroyed and replaced.
- Contingent business insurance coverage does pay out if a business partner cannot deliver components because of corona virus. A fire on the partner’s business premises is one criterion, for example.
- Bespoke insurance policies may pay out for event cancellations if the authorities have given an obligatory order. We provide bespoke insurance policies for the likes of concerts and film-makers. If, for example, a concert performer is infected by coronavirus, he or she must be covered by personal interruption insurance – and have a doctor’s note showing incapacity to work.
- Interruption insurance compensates for financial damage caused by an interruption. Such an interruption must be caused by material damage mentioned in the terms of the policy, such as a fire or machine breakdown. Thus, as a general rule, interruption insurance does not cover interruption damage caused by coronavirus. A general order to ban things like all restaurant operations in the country or a certain area is not covered by epidemic interruption insurance. Nor is disruption to business because of staff illness, quarantine or reduction in customer numbers covered by this type of insurance. If good, unimpeded access is important for the company’s business, it can enhance its interruption insurance coverage with “lack of access” coverage. For claims under this coverage to be paid, the police or emergency services must have given an order to prevent danger. Such an order must prohibit entry to the insured business’s premises. Businesses handling food can enhance their interruption insurance coverage to include epidemic damage to food. For claims to be paid following an interruption caused by an epidemic, an infectious or animal disease must be demonstrated in the policyholder’s operations or premises. On that basis, the authorities must have given an order to interrupt the insured operations.
- It is possible to take out contingent business interruption insurance. In that case, the reason for the interruption is essential. For claims under this type of insurance to be paid, a business partner must have suffered property damage, such as a fire, causing the subcontracting chain to break.
- With If, when a customer has taken out event interruption coverage, it’s possible to cancel the entire insurance policy if the customer cancels an event. This means that the event organizers get their insurance premiums back.
Text: Jari Lammassaari, Riikka Koskenranta