An Appraisal of the Extent of Business Interruption Insurance Coverage in the Context of the Covid-19 Pandemic
Melda TaşkınBusiness interruption insurance covers against losses caused by an interference or interruption of business as a result of circumstances out of the hands of the policyholders, such as natural disasters, particularly fires, earthquakes, floods, or epidemic illnesses. As it is known, during the first wave of the COVID-19 pandemic, many businesses were forced to shut down operations except for online sales, caused by both the severe restrictions of the governments and also contagiousness of the virus. The business owners who could not operate for a long time and incurred a serious loss of earnings appealed to their insurers who provided coverage for business interruption losses depending on agreements that were signed before the pandemic. However, most of these applications were refused by insurers on the grounds that business interruption insurance policies provide coverage only for business interruption losses caused by physical damage. Accordingly, the extent of the business interruption insurance coverage, as well as the meaning and scope of the term “physical damage,” has been intensively discussed both in doctrine and also in court decisions after restrictions of the pandemic were lifted. On the other hand, it is a known fact that in many policies used in practice, the parties can add “extension” or “exclusion clauses” into the agreement.
This study aims to both determine the coverage possible to be included in business interruption insurance policies, by considering the general insurance terms and conditions frequently used in practice, and also to solve the matter of whether it is possible to indemnify the losses related to business interruption caused by the restrictions and interferences of the COVID-19 pandemic.
The novel coronavirus, which was first identified in Wuhan, China, on December 1, 2019, subsequently spread to the entire world in a very short time. Following the cases reported in Europe, North America, and the Asia-Pacific region, the World Health Organization declared the virus as a pandemic on March 11, 2020.1 Since the first day the virus began to spread, the pandemic affected many people in different ways, with nearly seven million people having died globally.2 However, the losses caused by the coronavirus pandemic are not limited to health problems and deaths. As it is known, almost every country took a series of similar precautions and restrictions to decrease the losses which could arise from the virus. In this context, although the continuity of some exceptional services which have life-sustaining importance was maintained, especially during the periods when the spread of virus accelerated dramatically, some severe precautions were taken by the governments to decrease the speed of the pandemic. In the frame of these restrictions, legal regulations which set forth the longterm closure of most sectors began to be implemented all over the world.3 Because of these restrictions, such sectors as tourism, transportation, aviation, education, automotive, and catering were unable to operate for many months. Accordingly, many entrepreneurs appealed to their insurers for the loss of revenue caused by the COVID-19 restrictions, referring to their previously signed insurance which provides coverage for business interruption losses. Business interruption insurance could be identified as an insurance agreement which provides coverage to policyholders against losses which are caused by the interference or interruption of business as a result of many factors outside of the hands of the policyholder, such as natural disasters, particularly fires, earthquakes, floods, or epidemic illnesses. However, it is important to emphasize that since nearly all of the business interruption policies provide coverage for losses which are the direct results of “physical damage,” most applications failed to be upheld. Contrary to popular belief, the coverage provided by business interruption insurance is very limited. Because of this, there have been many discussions related to the possibility of payment from insurance companies based on losses caused by COVID-19, with many lawsuits having been filed since the early days of the pandemic.
In standard business interruption policies which do not contain any extension clause (non-damage clauses), the main issue related to business interruption losses caused by COVID-19 restrictions is the determination of the meaning of the term “physical damage.” As it is known, most business interruption policies used frequently in practice include some clauses which extend the scope of coverage. Determining the meaning of these clauses has a vital importance to decide whether compensation of the losses related to COVID-19 restrictions is possible or not, regardless of whether these losses can be qualified as physical damage. On the other hand, it is a known fact that in many policies used in practice, the parties can add “extension” or “exclusion clauses” into the agreement.
This study aims to examine the extent of the coverage business interruption policies were responsible for as it relates to losses which arose from the COVID-19 pandemic and the subsequent restrictions, both in light of the court decisions and the general terms and conditions frequently used in practice in the insurance industry. At this point, it is also so important to emphasize that when deciding the extent of a business interruption policy, the wording of the policy is of vital importance; in many policies used in practice, the parties can add “extension” or “exclusion clauses” into the agreement. Because of this, we also aim to examine “disease,” “denial/prevention of access,” “hybrid,” and “virus exclusion clauses.”
