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26 March 2020
A business interruption (BI) policy works in conjunction with the primary Material Damage (MD) policy. The BI policy is often referred to as a Consequential Loss policy meaning it will activate AFTER a loss has been paid (or covered) under the Material Damage policy.
The first prerequisite for a BI claim, is a claim under the MD policy for loss or damage to the assets insured (buildings, plant, equipment, stock etc). If as a result of such damage, the business suffers a loss of profit\turnover or increased costs, then the BI policy kicks in.
In the case of an infectious disease such as coronavirus, there has not been any damage to an insured item under the MD policy so without this component, there is no trigger for the BI policy to respond.
Apart from a handful of industry specific cases, no business interruption insurance policy covers, or has ever covered, the risk of infectious disease, war, insurrection, invasion, revolution, nuclear related damage, radiation and the like. Cover for these risks is unlikely to be obtainable. There may of course be minor exceptions, but the vast majority of policies will not cover infectious disease.
Insurers are simply not able to offer cover for such situations as they are unable to obtain re-insurance protection.
The risks associated with a pandemic, war, terrorism and the like, are generally regarded as a ‘crown risk’ and the Governments of the world will look after their country as they see fit. The NZ Government’s recent announcement of an assistance package is an example of this. Your business can find out more about eligibility or apply for the assistance on the New Zealand Government website.
One of our core responsibilities as a broker is to ensure you have all the information you need to make informed decisions about the risks your business faces. With the effects of coronavirus being felt in a number of ways by our clients across the country, we wanted to share some advice to help you make decisions about protecting your business during this difficult and unprecedented time.
If you have any questions please talk to your broker.