Coronavirus: Shuttered U.K Cinema Chains May Not Be Able to Make Insurance Claims

Courtesy of Cineworld
U.K. cinema chain Cineworld

Experts say that by electing to close theaters, many of the country's largest exhibitors won't be covered amid the pandemic: "We’re in a very novel situation here"

When British Prime Minister Boris Johnson on Monday ramped up the U.K.'s response to the coronavirus pandemic, using the first one of his daily press briefings on the crisis to urge the public to "avoid pubs, clubs, theaters and other social venues," a loud groan could be heard across the country’s entertainment industry. 

The general consensus from many was that, in not officially ordering businesses to close — as had been done across various parts of Europe, including Italy, France and Spain — the government was effectively ensuring that, should cinema chains make the decision themselves due to empty venues or concerns over staff safety, they wouldn’t be able to claim on insurance. Nevertheless, on Tuesday the U.K.'s biggest cinemas chains Odeon, Cineworld and Vue all announced they would be closing

The outrage to Johnson's statement was compacted on social media, where the Prime Minister was accused of effectively "abandoning” the industry, and writing its "death sentence."

"The government needs to be clearer in its guidance and its language so that theatre companies can claim insurance to ensure that staff are not left without pay for weeks on end," Philippa Childs, the head of entertainment union Bectu, said in a statement shortly after the briefing. "It is failing to provide the clarity it needs to, and this must be addressed immediately."

But according to insurance experts, it’s not quite so clear-cut to make such assumptions or blame the government.

"I think that actually represents something of a misunderstanding and an oversimplification of the situation," said Aaron Le Marquer, head of the products and environment risk practice group at U.K. insurance law firm Fenchurch. "It’s not as black and white."

Speaking to The Hollywood Reporter, Le Marquer said there would indeed be some businesses whose insurance required a forced closure for them to claim, but that there wasn’t a standard policy. "Some businesses will have no cover at all, regardless of what the government tells them to do or doesn't tell them to do," he explained.

According to Le Marquer, it all depends on the specific wording of each particular policy, something that insurers and their clients will now likely be examining closely. For example, some may have purchased business interruption cover for infectious disease.

"But once we look at that, the detail of the cover may be that it’s only covered where there's an outbreak on their premises, so it's not going to help them at all when they closed down because of a pandemic," says Le Marquer.

Most business interruption covers, when it comes to loss of profits or the expense of keeping staff employed during closure, traditionally only come as part of a property damage policy, kicking in when premises are, for example, flooded. To include nonphysical damage clauses would, says Le Marquer, require the businesses to purchase extended cover, something that many smaller operations are unlikely to have.

"The bigger companies are going to have much more comprehensive risk management programs in place, with extensive insurance which they will have paid more money for," he says.

But that said, even the bigger companies could be in for a rough ride. Cineworld CEO Moshe Greidinger on an earnings conference call March 12 said: "We have no insurance. The current insurance policies are not covering closure of cinemas because of such [a] natural disaster."

"The problem is, we’re in a very novel situation here. We’ve never faced quite these circumstances at all before, and this would not have been what was in the minds of insurers or the policyholders when they bought the policy," adds Le Marquer. "So once you start looking at the cover, it's not going to be designed to cover the situation where effectively the whole country is shut down. And even where, on the face of it, policyholders might think they purchased the cover, when they start looking at the detail of it, they might find that insurers will certainly start arguing that the claims are excluded."