The IBA’s response to the war in Ukraine
Covid-19: a Danish perspective on business interruption insurance coverage
Anne Buhl Bjelke
Bech Bruun, Copenhagen
Covid-19 has had significant economic consequences for both the Danish and global economy. Many Danish businesses have suffered significant loss of income as a consequence of interruption of production, closure of stores, decreases in exports and demobilisation and layoff of employees. This extraordinary situation raises questions as to whether it is possible to claim insurance coverage for business interruption (BI) losses suffered by Danish corporations due to Covid-19.
Danish BI insurance policies usually cover business interruption losses caused by an insurance event. Such losses can include loss of profit, unproductive operating expenses, as well as increases in operating costs, as long as it is caused by an insurance event.
The question of whether a BI insurance covers Covid-19-related business interruption losses is of great importance to the insurance sector, as well as businesses affected by Covid-19.
Is Covid-19 an insurance event?
The assessment of whether Covid-19 can be regarded as an insurance event depends on the wording of the specific policy in question.
Danish BI policies will often only cover business interruption losses caused by physical property damage. Business interruption losses connected with Covid-19 will rarely fulfil this requirement because, as a general rule, Covid-19 does not cause property damage in itself. This means that Covid-19 will not be regarded as an insurance event under the majority of Danish written BI policies, and insurers will consequently be entitled to decline coverage of a business interruption loss caused by Covid-19.
Some Danish BI policies explicitly exclude business interruption in certain specific situations, and similarly, some policies specifically include coverage caused by named perils. Some policies therefore explicitly exclude business interruption losses caused by pandemics and epidemics and similarly losses caused by public authority closures. If that is the case, coverage for business interruption losses caused by Covid-19 will certainly also be excluded.
However, there are also policies which explicitly include coverage for business interruption losses caused by a pandemic and/or epidemic. In those situations, a business interruption loss may be covered under the policies.
The approach of the Danish insurance market
The question of insurance coverage of business interruption losses caused by Covid-19 has yet to be tried in Denmark, where we have not seen any movement towards the commencement of a test case similar to the one recently heard by the High Court in the United Kingdom.
However, a review of the Danish insurers’ statements related to Covid-19 and business interruption reveals that the approach taken by insurers is a very uniform: ‘business interruption losses caused by Covid-19 are not covered by general business insurances with BI coverage.’
In Denmark, the government has provided a range of financial aid support packages for businesses suffering losses due to Covid-19. These financial packages include:
- an entitlement for small and medium-sized enterprises to state guaranteed loans;
- a state guarantee for larger companies, for 70 per cent of bank loans;
- a temporary scheme compensating fixed costs for corporations with a significant decline in turnover caused by Covid-19;
- a temporary scheme compensating self-employed/independents up to 75 per cent of an expected decline in turnover if the decline is significant and caused by Covid-19;
- a compensation scheme for large events forced to cancel due to Covid-19; and
- a postponement of VAT and income tax payments.
This wide range of financial packages may have helped reduce the number of business interruption claims or at least curbed policy holders’ interest in having a BI coverage dispute tested before Danish courts.
A number of the financial packages mentioned above have now been discontinued by the Danish government. Some industries are nevertheless still affected by Covid-19, and businesses continue to suffer business interruption losses. It may therefore be that we witness more claims for business interruption coverage over the next few months.