Most business owners are aware of the potential risks that could affect their businesses, such as storm and fire damage, theft, or employee injuries. In addition to these factors, national lockdown restrictions imposed by government can be added to the list, due to the rise of Covid-19.

As a result of lockdown, the majority of businesses in South Africa have suffered severely from halted business operations while fixed expenses were to be covered, despite generating less or zero profit. Enterprises with business interruption cover in place, are however protected against loss of revenue caused by unforeseen events.

This type of cover insures a business from unanticipated losses and disruptions by covering fixed expenses and overheads during the affected period. Without protection against business interruption, expenses that are still to be covered such as rent and employee salaries for example, could cause a business to fail.

For example, the kitchen of one of our restaurant clients was ruined by a fire that started in the early hours of the morning. As the restaurant is dependent on the kitchen for normal operations, it was forced to close its doors. This meant that no income was generated during the restoration, but overheads such as rent, electricity, water, salaries and payments to suppliers remained due at the end of each month. If the restaurant did not have business interruption insurance in place, it is unlikely that it would have survived the financial impact of the fire.

Business interruption cover is especially considered a crucial insurance product at the moment, since Covid-19 has become a major unforeseen circumstance impacting most sectors. Recent court cases involving a number of insurers that have refused to settle business interruption claims related to national lockdown, have made headlines in South African news.

Insurance companies have argued that business interruption insurance does not include business interruption caused by Covid-19, since losses occurred as a result of the government’s response to the virus and not the virus itself. The Court has however, ruled in favour of policyholders, claiming that lockdown and the virus is linked as a lockdown would never have been imposed if it were not for Covid-19.

Although most business insurance policies include a business interruption clause, it is still important for business owners to check whether this coverage is included and how it responds to potential losses.