The unprecedented halt to business activity brought on by the coronavirus lockdown has many businesses wondering if their insurance will cover any of their losses. It is complicated, explains Nicholas Taitz, director at legal firm Knowles Husain Lindsay Inc.
“Inevitably, the consequence of lockdown is that businesses across the board are suffering,” says Taitz. “At the very least, they face loss of revenue, laying-off of staff and supply chain failures. At worst, they are forced to shut down for good.”
Are such losses of revenue or business closure covered by insurance? Taitz cautions that there is no simple answer.
“The harsh reality is that – in most commercial policies issued in South Africa – there will no protection against loss of revenue,” he says. “While there are certain extensions of cover available in the South African market, there are also exclusions from cover in some policies.”
In terms of insurance policy benefits, the consequences of the coronavirus shutdown should not be confused with a force majeure situation – where a contract cannot be performed, or a sports event cannot take place for reasons beyond anyone’s control. The first step for any business is to get professional advice on whether it is entitled to any insurance benefits against the consequences of the state of disaster.
“Where a company has cover for business interruption, this may well include the impact of an infectious disease or pandemic like the coronavirus,” he says. “However, this would have to be evaluated in the light of the particular insurance contract in question.”
Taitz urges businesses to take legal advice on the details of their insurance agreements, and also to consider appropriate extensions of cover or additional cover in the light of the current crisis and its consequences.
“It’s important to remember though that no insurer will provide cover for coronavirus-related losses now,” he says. “It is a fundamental principle of insurance that it is undertaken to cover potential occurrences or fortuities, and not ones which have already taken place.”
He raises a further insurance issue related to the widespread necessity for work-from-home arrangements, especially where people are taking company-insured computers and office equipment home.
“Insurance contracts covering such equipment will ordinarily have been issued on the understanding that it is physically located in a secure office space,” he says. “Where employees have taken equipment home, the insurer needs to be notified in the manner prescribed by the relevant insurance contract.”
Neither should it be assumed that it is enough simply to notify the insurer; the contract may not entitle the insured business to unilaterally alter the terms of the policy in this way. The level of security at a private home, for instance, may be much lower than the office – requiring the insurer’s risk and insured’s premium to be adjusted.