Business interruption insurance: Will dentists be covered for lockdown-related losses?
LEIPZIG, Germany: At this point, it has become clear that the COVID-19 pandemic has significantly reduced dental patient numbers. It follows naturally from this, then, that the financial performance of many dental practices has likewise taken a hit. A common method of protecting one’s business against certain disruptions—business interruption (BI) insurance—has now become a point of focus in courts across the world, as its validity is being assessed in the context of these difficult times.
Generally speaking, BI insurance provides protection for firms that suffer from a loss of revenue due to certain events. Though specifics vary from insurer to insurer, it tends to cover rent, wages, utility costs and other expenses during the time in which the company is unable to conduct transactions as normal.
BI insurance policy claims are often triggered by natural disasters, including floods, fires and cyclones, and have traditionally required physical property damage or property loss to be evident before a claim can be made. In recent years, however, infectious disease outbreaks, such as the severe acute respiratory syndrome epidemic of 2002, have resulted in certain forms of BI insurance providing cover for companies, such as dental practices, that are forced to shut down in order to contain the spread of the disease or virus.
Dental Tribune International (DTI) has extensively documented how dental practices around the world were thrown into chaos when widespread government lockdowns mandated that they shut their doors to patients. Though a great many of these practices have since reopened, patient numbers remain well down compared with pre-pandemic levels, and activity targets, such as those currently in place in the UK, have angered dental professionals with their threats of financial penalties for practices perceived to be underperforming.
BI insurance, dental practices and lockdowns
For dental practices intending to utilise their BI insurance policies to recoup lost earnings, recent court decisions have proved to be a mixed bag. Last month, the UK’s Supreme Court ruled largely in favour of firms with BI claims relating to the COVID-19 pandemic and ensuing government restrictions, leading NASDAL (National Association of Specialist Dental Accountants and Lawyers) to declare in a press release that the judgment “could provide a lifeline” for insured dental practices.
“This does appear to be excellent news for policy holders claiming for business interruption following the COVID-19 lockdown,” said Steven Davidson, NASDAL member and partner at the accountancy firm Oliver Clive + Co, in the same press release. Though Davidson asserted that the ruling “provides clarity for many thousands of claimants”, he acknowledged that there were “still a number of issues that need resolving”.
“One [issue] is the question of aggregation and whether insurers will accept that the disruption caused by the pandemic is one event or more—this issue has not been decided by the Supreme Court and may well have to be decided by future litigation,” Davidson noted.
“There is also the question of whether any applicable sub-limit or multiple sub-limits of liability applies to any one loss, any one claim, any one occurrence, any one event or any one originating cause under the policy and are recoverable particularly under non-damage BI extensions,” he concluded.
Over in Australia, the New South Wales Court of Appeal heard a similar test case late last year, and its ruling was akin to that of the Supreme Court in the UK. It found that BI insurance policies should generally cover pandemic-related losses incurred by businesses.
In the US, litigation regarding BI coverage has primarily been focused on whether COVID-19-caused restrictions have constituted “physical damage” or “physical loss”, according to a recent article in the National Law Review. To this point, most court decisions have ruled that BI insurance does not provide coverage, leading to “lots of frustrated dentists” in the opinion of Dr Michael Davis, a New Mexico-based dentist.
“The new presidential administration has certain goals, and this seems to be outside their area of interest,” Davis told DTI. Davis authored an article for Dentistry Today on the doubtful viability of BI insurance back in June 2020 and said that not much had changed in the months since its publication.