Introduction
The nation and the world at large are presently being rocked by the pandemic that is COVID-19. In times such as these, it is important to equip yourself with knowledge, not only about the virus and how to protect yourself against it, but also about the impact that it could have on your business.
In this regard, Business Interruption cover (“BI Cover”) is an important insurance offering in both Short and Long Term insurance. In order to ensure that BI Cover protects you and your business where required, you should always first consult with your broker and/or insurer to check that you are covered, should your business be disrupted due to situations such as the current COVID-19 pandemic.
During the course of this article, BI Cover in relation to Short and Long Term insurance will be canvassed. It is important to note that cover will differ from insurer to insurer and that this article only serves to explore this topic in a general manner.
Explaining Business Interruption Cover
BI Cover is offered by insurers to compensate a business for the pecuniary loss it may have suffered due to an unforeseen business interruption which is resultant from either physical damage to the insured property, which is used in the running of the business, or another key external event or peril, which event is included in the policy schedule and/or policy wording as being covered.
The purpose of BI Cover is to reinstate the business to the same financial position that it would have occupied, had the loss not occurred (subject to the cover limit contained in the policy schedule), which is generally calculated using the gross profit and standing charges of the business. It can also cater for any additional costs incurred by the insured as a result of the peril in order to minimise further loss of revenue. It could also cater for the increased cost of working incurred by the insured as a result of a BI.
BI Cover, like all insurance cover, is subject to the terms and conditions of the policy schedule and policy wording.
While BI claims are normally linked to material damage and/or damage to property, we will explore whether business interruption cover could be utilised towards damage or interruption caused as a result of COVID-19.
Short Term Insurance
Short Term insurance provides financial cover for unforeseen circumstances surrounding an event or peril, such as fire, theft, or flooding. Short Term insurance policies are contracts and, accordingly, the contracting parties (the insurer and insured) are bound by the terms contained therein.
Accordingly, whether or not a business is covered for BI caused by COVID-19 is determined firstly by answering whether the business took out BI Cover and, secondly, by whether the BI Cover extends to Business Interruptions caused by COVID-19 or similar infectious diseases. The BI Cover policy wording may not expressly state that COVID-19 is covered, however, it may provide for a blanket cover for BI in instances where your business is interrupted by an infectious disease, for instance.
Michelle Vivian, a Short Term Insurance Specialist employed by Wealth Associates South Africa, a group of wholly owned subsidiaries specialising in financial disciplines, advises that it is important to check the wording and extensions on your BI policy, as she is sceptical as to whether COVID-19 interruption is covered by most policies. She has, however, advised that inclusive wording does exist and recommends that members of the public consult their policy schedules and wordings, as this is an extra extension on most BI policies which needs to be expressly included, as its inclusion is not automatic.
Long Term Insurance
Long Term insurance offers an assurance and provides cover for events which will occur, such as death. A life assurance policy, for instance, will generally result in a payment being made, as death is inevitable (this is obviously subject to the terms and conditions of the policy and contract).
For the purpose of this article, we will refer to two long term offerings involved in long terms insurance policies known as Key Man Policies and Buy and Sell Agreements. A Key Man Policy is a policy that assures for the death, disability and dreaded disease of key people within your business or organisation. It is used for succession and business protection purposes and does not extend beyond the policy term or period of the key person’s usefulness to the business. Should a director fall prey to COVID-19 and should this result in his/her death, this cover could trigger and provide the business/organisation with the specified limit of funds for a specified period outlined in the policy schedule, or for the period determined by said persons usefulness within the business/organisation. Elindi Van den Heerver Wealth Associates South Africa, advises that is important to check your policy schedule and confirm whether you are covered, because, while certain forms of BI would be honoured (in relation to COVID-19), others would not. Examples were that, while the death of a director caused by COVID-19 was likely to be covered, critical illness or disability caused by the virus would not be, as COVID-19 is not a defined disability or critical illness event, however, certain complications or symptoms of COVID-19 might be covered, and, as such, it is dependent on a case to case basis.
Buy and Sell Agreements, on the other hand, are legally binding contracts which stipulate how a partner’s share of a business may be re-assigned if the partner leaves a business or dies. This agreement would be made between your business or organisation and your insurer, and it would pay out on the death or leaving of said partner /shareholder.
These agreements are commonly used by sole proprietors, close corporations, and partnerships to mitigate the effect of the death of a partner on the organisation in terms of ownership.
In relation to the current pandemic, cover in respect of Buy and Sell Agreements would potentially trigger upon the death of a partner of your business or organisation that was caused by COVID-19. Should a partner of your organisation be forced to leave due to complications surrounding COVID-19, the cover may well also incept, however this would differ from policy to policy and it is important to inspect the policy wording and policy schedule and to consult with your broker and/or insurer to determine the inclusivity of your cover.
Conclusion
While it is highly unlikely that insurers would incept new BI Cover relating to COVID-19 given the prevalence of the present pandemic, you may already be covered or partially covered for any BI you may have suffered depending on your policy wording, and if not, this gives you the opportunity to address the lack of appropriate cover in order to mitigate the potentially disastrous results a pandemic such as COVID-19 or other similar infectious disease could have on your business or organisation in the future.
Should you require any assistance in the interpretation of your policy wording please feel free to make an appointment with one of our specialised attorneys.
By Alec Veitch, Partner; Lauren Squier, Associate Designate and Marc Gevers, Candidate Attorney
