Question on deterioration of stock due to closure of business

Hi Allan,

Really appreciate your blog and insight.

I have a query from one of our hotel operators, in relation to stock coverage, under their policy, due to the government instruction to close their doors with COVID-19.

I am aware that there is no coverage under Section 2 under the Infectious diseases clause due to this being declared a Quarantinable disease from the end of January 2020.

However, in relation to cover for Stock which has deteriorated in the fridge, is there coverage under an ISR policy for this?

The wording I am referring to, is with Pen ISR Mark IV (Modified) Policy Wording vXLICSE0419 but the same question would apply to other Insurers ISR policies we hold for different clients.

I feel that Stock has potential to be covered under the Accidental Damage (physical loss, destruction or damage) section of the policy, as I do not believe the peril is excluded. I would appreciate your view on this matter.

Many thanks in advance.

Brie [surname and email provided]

Thanks for your question Brie.

Regrettably, there would be no cover under the standard ISR policy.

I explain the exclusions that apply below but I have to stress that what I am quoting is from the base Mark IV Advisory and Mark IV Modified policies. The policy can be endorsed to extend the cover and you need to carefully read the Schedule and all the endorsements to see if the cover is written back in.

Now to the standard Mark IV wording.

Perils Exclusion 4 (a), under the Mark IV Industrial Special Risks Policy, specifically excludes losses occasioned by, or happening through disease. The actual exclusion reads:

“The Insurer(s) shall not be liable under Sections 1 and/or 2 in respect of:

4.        physical loss, destruction or damage occasioned by or happening through:

(a)      moths, termites or other insects, vermin, rust or oxidation, mildew, mould, contamination or pollution, wet or dry rot, corrosion, change of colour, dampness of atmosphere or other variations in temperature, evaporation, disease, inherent vice or latent defects, loss of weight, change in flavour texture or finish, smut or smoke from industrial operations (other than sudden and unforeseen damage resulting therefrom).”

[emphasis mine]

The words ‘occasioned by and happening through’ are very broad and as you will see, disease is one of the perils that the policy excludes.

Now, there is a write back provision, which brings back cover for resultant damage. This reads:

Provided that this exclusion 4 (a) to (e) shall not apply to subsequent loss, destruction of or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion.”

Before we get too hung up on these words for your case, we need to look at Perils Exclusion which reads:

“The Insurer(s) shall not be liable under Sections 1 and/or 2 in respect of:…

 9.       consequential loss of any kind including consequential loss due to delay, lack of performance, loss of contract or depreciation in the value of land/or stock, except as herein provided in Section 2.”