The question of whether or not a Business Interruption Insurance Policy will respond to a claim is a matter that is uppermost in many businesses minds at this unprecedented time.
The issue that most businesses will face is that most basic Business Interruption Insurance will not cover closure due to Covid-19. Whilst there are different types of Business Interruption Insurance clauses, in the main a standard clause will cover business closure due to a Notifiable Disease and then will list those diseases which are covered.
Covid-19 did not become a Notifiable Disease until 5 March 2020 and as such is unlikely to be listed in any insurance policy as a disease that is covered by the clause. This will be the situation in the vast majority of cases.
However, some businesses may have more generous clauses (which list those diseases not covered for example) or have purchased an extension which covers any unspecified Notifiable Disease. It is this type of insurance that is expected to respond to claims arising from Covid-19. Unfortunately, many insurers are trying to avoid providing cover under such a clause. Whilst there are various arguments, the most common argument we have seen to date is that it is not Covid-19 that has forced the closure of the business but the Government ordered lockdown on 23 March 2020 and, as such, it is outside the terms of insurance.
This may give rise to an anomaly where a business closed after 5 March and as such has a valid claim but insurers may try to limit it the loss up to the date of the general lockdown.
It has already been reported in the press that there will be challenges to such stances taken by insurers and it is fair to say not all insurers are taking a similar position. On 15 April 2020 the FCA, the regulator for insurers, wrote to all the CEOs of insurance companies. That letter acknowledged that basic Business Interruption cover would not require an obligation for the insurer to pay and it accepted that, whilst this would be disappointing to the policyholder,they saw no reasonable grounds to interfere in such circumstances.
However, the letter went on to say:
“In contrast there are policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important these claims are assessed and settled quickly. A key objective of the FCA is to ensure that financial pressures on policyholders are not exacerbated by slow payment, rather, such claims should be paid as soon as is possible.”
The letter goes on to say if insurers disagree, then they should write to the FCA with the grounds for reaching a decision for non-payment and set out how they believe it represents a fair outcome for customers.
Therefore, whilst some insurers have taken the decision to try and avoid cover, this may be against their own regulator’s guidance. There will therefore undoubtedly be grounds for challenging such refusal to meet payment.
How we can help
At Hay & Kilner we have experts with many years experience in dealing with insurance companies. We help businesses challenge insurance cover decisions.
We can review your policy to advise on whether you could reasonably expect it to provide cover in the Covid-19 pandemic and, if so, act on your behalf in challenging the decision whether that is through the Court, or for smaller businesses, through the Financial Ombudsman Service (“FOS”). FOS can only deal with claims made by smaller businesses and on claims up to £355,000 but it has the prospect of a quicker decision than through the Court process.
We would expect as more and more claims are made to FOS insurers will see which way the wind is blowing and hopefully decisions on cover will be made more rapidly in the future but there will undoubtedly be significant litigation.
Fixed fee review – we can look at your current policy and tell you if we feel you have a reasonable case for cover for a fixed fee of £375 + VAT. Included in this, we will provide you with a first letter to send to the Financial Ombudsman Service, which will set out your case for cover.
If you would like any further information or help please do not hesitate to contact Tom Whitfield on firstname.lastname@example.org who will happily discuss this matter further with you. A first / initial discussion will be free of charge.