Mandatory on-trade closure will not lead to insurance payout

The UK on-trade is facing serious disruption in the face of the Covid-19 pandemic but operators would be well advised to check their business interruption policies because most or even all are unlikely to cover disruption caused by the pandemic even if closures are made mandatory.

There was anger in the UK on-trade sector yesterday as prime minister Boris Johnson advised the British public to stay away from pubs, bars and restaurants (as well as theatres, cinemas etc).

The trade argued that without a mandated shutdown from the government they would be unable to claim on their insurance on the grounds of business interruption.

Unfortunately this is not the case. Although business interruption policies can and do cover illnesses and diseases which cause a loss of income, the disease has to be “notifiable” and named explicitly on the policy.

As Covid-19 is so new, and having only been made a notifiable disease in the UK in recent weeks, it will not be named in policies and its addition to the list of notifiable diseases has not changed existing policies.

As a statement from AXA Insurance makes clear: “In general, when our Business Interruption policies provide an extension in cover for infectious diseases, they list the diseases by name. Only for those diseases will they compensate for financial losses resulting from premises having to close. Our wordings don’t refer to a general class of notifiable diseases, but they name each disease individually. When COVID-19 was added to the list of notifiable diseases in England, it did not change policy coverage.

“UK insurers use this precise approach of naming individual diseases rather than referring to a group because they cannot cover risks that they can’t assess.”

As a further example, the Guardian reported yesterday that the pub group Ei (formerly Enterprise Inns) had warned its publicans that its insurance provider, Zurich, would not cover them for loss of business because of Covid-19 and for the same reason AXA gives above – Covid-19 was not a notifiable disease when policies were agreed upon.

The Association of British Insurers has also issued a statement to the effect: “Irrespective of whether or not the government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed for coronavirus.

“Standard business interruption cover – the type the majority of businesses purchase – does not include forced closure by the authorities as it is intended to respond to physical damage at the property which results in the business being unable to continue to trade.

“A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance an enforced closure could help them make the claim, but this will depend on the precise nature of the cover they have purchased so they should check with their insurer or broker to see if they are covered”.

The recent budget unveiled several policies to try and protect small businesses from the impact of Covid-19 including changes to business rates.

The real hope for the on-trade and indeed many other sectors now is that the government puts together a support package to help keep businesses afloat and support hem through the period of the pandemic.

CAMRA said in a statement: “If the Government believes people should not go to pubs, it needs to show leadership by clearly telling pubs to close their doors – and not unfairly leave it up to licensees to make an impossible decision. It needs to makes it clear for how long a period the enforced closure should last, and quickly deliver a package of support to see pubs and breweries through until they can again deliver the host of benefits pubs bring to the communities they serve. 

“This should include, but not be limited to: extending business rate relief to all pubs, regardless of rateable value; deferring or forgiving VAT payments; covering staff salaries; allowing pubs to stay open if they provide other vital community services such as post office facilities; and helping pubs recover at the end of the crisis by introducing a differential rate of duty on draught beer served in pubs. 

“We’d also call on pub companies to support their tenants by giving them a rent holiday during the crisis and particularly during any forced closure. Other suppliers such as sports TV providers could also demonstrate their support of the pub industry by giving a payment holiday.”

The WSTA has created a dedicated section on its website related to Covid-19 and the lobbying it is doing with UKHospitality on behalf of the trade.

For the on-trade in particular it is calling for:

• A suspension of business rates for all business regardless of size.
• A freeze on business rates arrears.
• Statutory sick pay to all hospitality businesses.
• The permission of temporary staff redundancies with Universal Credit covering wage costs.
• The temporary deferral of rent by commercial landlords with government guarantees.