Far more businesses and individuals have taken out business interruption insurance in recent years. In fact, there has been a 70% increase since 2015 in the SME market and SMEs represent 99% of business es in the UK.
You might be forgiven for thinking that this insurance offers a lifeline to businesses whose income streams have been hit so hard as a result of the ongoing Coronavirus crisis, but is this necessarily the case?
Despite the fact that business interruption insurance is intended to cover loss of income arising from an unexpected event, many insurers have already indicated that they will resist paying out on these claims, essentially on the basis that this pandemic is not covered by their policy wording. Insurers are also no doubt concerned about setting a precedent in these types of claims, which could cost them a great deal of money.
Indeed, Hiscox, which is the fifth largest provider of business interruption insurance to SMEs, has recently rejected an insurance claim for business interruption cover, which has seen it come under some serious media scrutiny.
Whilst insurance policies will differ from insurer to insurer, what we have seen to date indicates that insurers are generally intending to resist claims on the basis that the policies are not intended to cover a global pandemic, such as Coronavirus, but rather a more localised and identifiable outbreak of serious illness either where the insured business is located or within a defined number of miles. Some insurance companies are even trying to head off claims of this kind by producing statements setting out why business interruption insurance will not apply in the current circumstances.
In the end, the courts are going to have to make a finding or series of findings as to whether the wording included in these policies does or does not cover loss suffered as a result of the current pandemic. The essential question is whether the wording in the relevant clauses applies to the loss arising from this crisis and if it does, whether the insurers are in breach of contract in failing to pay out under these policies.
The Association of Business Insurers has recently provided guidance on business interruption cover which we suspect is likely to paraphrase the line that many insurers are already taking and will continue to take in these claims - (www.abi.org.uk/products-and-issues/topics-and-issues/coronavirus-hub/business-insurance). This note states: “...such policies often respond only
when the disease is present at the premises as they cover the interruption to trade caused where business premises have been infected by an illness such as Legionnaires’ disease or norovirus and where the building needs to be closed and cleaned to deal with the specific incident”.
In a rather less generous approach to insurers, on 15 April 2020, the Financial Conduct Authority (FCA) published a “Dear CEO” letter to insurance firms on their conduct relating to business interruption insurance for SME’s during the pandemic, reminding insurers and brokers that it expects them to provide clear, accurate and fast communication to customers and to assess and settle claims quickly (www.fca.org.uk/publication/correspondence/dear-ceo-insuring-sme-business-interruption-coronavirus.pdf).
The FCA goes on to say that good claims should be paid and, where there are reasonable grounds to pay part of a claim but not to make payment in full, interim payments should be made and the FCA requires firms who disagree with this approach to contact the FCA and, in effect, justify how the outcome they have reached is fair for its customers.
At the start of May, the FCA stated that it was seeking legal clarity via the High Court on business interruption cover so as to try to remove doubt for businesses which are facing uncertainty on their claims and, more recently, the regulator invited brokers and policyholders who are aware of any unresolved disputes with insurers to put forward their arguments in order to help with this process and, more specifically, its proposed High Court test case.
If you would like help to assess your position and whether you may have a claim based on your business interruption cover, please see the video and questionnaire at www.dmhstallard.com/services/services-for-business/ commercial-dispute-resolution-and-litigation/business-interruption-insurance-do-you-have-a-claim www.dmhstallard.co.uk