The insurance industry has caught us in a loop, not paying out on force majeure and saying that pandemics are not covered under business interruption clauses. So where do we go from here, asks Robin Sheppard
Covid-19 has made us realise that we are not insured against the unknown – not even the unknown unknowns made famous by Donald Rumsfeld. We do, however, know that our insurance industry will find an escape clause – one that we always knew would be unknown to us.
So why insure our businesses at all? And how can we protect our businesses better? Well, one way is to reinvent our relationships with our insurers and to build an unknown disaster insurance clause into future contracts.
Business interruption insurance schemes often don't work and force majeure by historic definition so often doesn't deliver cover, whatever premium you end up paying.
There have been a lot of debates in legal ‘snippets' about this. Fundamentally, there was a misconception, fuelled by the media and government, that business interruption insurance would cover the lockdown.
There was a misconception, fuelled by the media and government, that business interruption insurance would cover the lockdown
Advisory company Willis Towers Watson has just released a note summarising what our brokers, and insurance lawyers have been saying. It said: "Pandemics are generally market-wide exclusions to prevent the whole private insurance industry being exposed to a massive cumulative loss around the globe."
A minority of businesses choose to buy cover that includes local closure due to an infectious disease. An even smaller number have cover enabling them to potentially claim for the presence or impact of this pandemic. It is Willis' view that even if you have extensions to cover notifiable diseases, these will in nearly all instances exclude cover for new notifiable diseases and pandemics.
Covid-19 is a new notifiable disease. There is no connection between force majeure in a contract and business interruption insurance. Force majeure is a French concept introduced into some English contracts. There is no underlying English law basis for it, so it is interpreted strictly in accordance with the words used, hence each clause can have a different result.
What is certain is that another unknown crisis will come along after Covid-19 for which we are unprepared. We must use this time of furlough wisely to build a more equitable level of cover and protection into our businesses and develop a new, stronger bond with our insurers. After all, we have plenty of thinking time on our hands, and it will be our own fault if we don't spend it wisely.
Robin Sheppard is chairman of Bespoke Hotels
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