On 30 April 2020, the Financial Conduct Authority (“FCA”) announced via a press release that it is seeking a court declaration to resolve contractual uncertainty in relation to business interruption insurance cover (“BIIC”).
This move is welcome as a binding court declaration will inevitably assist many businesses who have attempted to claim under their BIIC without success.
In managing expectations, the FCA makes clear that most policies are unlikely to cover losses arising out of the pandemic. They are concerned primarily with those policies where the policy wording is less clear or where specific extensions have been purchased and are not responding to claims.
Interestingly, the FCA state in their press release that where an insurer refuses cover, there may be, “a gap between firms and customers understanding of what they thought was covered by the policy” and the customers may feel that the policy has been mis-sold to them by their insurer or their broker.
What is business interruption insurance?
Businesses are often advised to take out BIIC as part and parcel of safeguarding their businesses and managing business risks.
The terms are normally set out in the main body of the policy and the schedule.
Insurers agree to pay out an agreed amount in relation to business losses following the occurrence of certain insured events such as damage or closure to business premises.
Why have there been difficulties with BIIC claims?
Policy wording varies significantly with different insurers. This has been the cause of significant confusion during the pandemic. Only a detailed examination of the policy wording itself together with the schedule will enable a customer to ascertain whether they have cover.
Most standard cover policies will not respond as they only respond to damage which has resulted from physical damage to business premises.
The grey areas appear in certain policies only or where customers have the benefit of specific policy extensions.
For example, the Hiscox BIIC specifically refers to, “any human infectious or human contagious disease” in the context of closure of business premises by a local authority. Hiscox have to date denied BIIC claims notwithstanding their specific policy wording.
Other policies are clear on exclusions such as those issued by Aviva which have since about 2013 specifically excluded “new and emerging diseases” which would include Covid-19.
Some businesses may have purchased an extension to their BIIC cover. These specifically provide cover due to “infectious disease” (“the disease extension”). Also, an extension for any loss caused by access to business premises being hindered or prevented for certain reasons such as closure by a local authority (“the access extension”).
Covid-19 (or, technically, Sars-Cov-2) was listed as a, “notifiable disease” by virtue of The Health Protection (Notification) Regulations 2010 effective on 05 March 2020.
It is arguable, on a literal reading of the disease extension, that insurers should be required to accept claims from their customers.
However, acceptance or rejection of a claim will be considered based upon the specific policy wording and the actual cause of the loss.
For example, even if a BIIC has the disease extension, an insurer may claim that a business closure has not been caused by the disease itself but in response to the government lockdown especially as the business premises themselves has not suffered any actual contamination.
Further, with regard to the access extension, insurers may argue that the policy risk cover only applies to loss of access caused by an outbreak of the disease in the vicinity or on the actual business premises thereby excluding the current national lockdown.
Clearly, the current situation will benefit from judicial certainty as currently being sought by the FCA.
How much can I claim?
Most BIIC policies are assessed on a loss of profits basis for a fixed period of time, usually 12 months.
Additional sums such as accountant’s charges, debts which a customer has not been able to recover and other specified amounts may also be payable.
How can I claim?
Customers should check the wording of their particular policy to ensure that they follow the procedure for making a claim. Failure to follow the set procedure can invalidate a claim.
Where an insurer refuses to pay, a customer can pursue arbitration, court proceedings or a claim to the Financial Ombudsman Service (“FOS”). The FOS limit for awarding claims is currently £350,000.
Many solicitors are able to offer no-win-no-fee, litigation funding and after the event insurance in claims against insurers and/or brokers.
Have I been mis-sold business interruption cover?
Most insurance brokers have professional indemnity insurance to cover them from claims relating to any willful or negligent mis-selling of policies, under insuring a customer and, in specified circumstances, for failing to advise on the correct methods of calculating losses due under a policy.
Should you require any further information regarding pursuing a claim in respect of losses arising from business interruption insurance cover, please do not hesitate to contact our Mr Bill Dhariwal, Managing Director, Lawcomm Solicitors, DDI: 01489 864 117, E: email@example.com
Please note: The above article was written on 05 May 2020 and does not constitute specific legal advice.