Business interruption policies should be a source of comfort for business in the present crisis but sadly the majority of policies have not proven to be the comfort blanket they were intended to be. In this article we look at some of the common issues with Actons Solicitors. The problems and concerns are so widespread that the Financial Conduct Authority (FCA) is in the process of seeking declarations from the High Court in relation to some of the common questions being raised about the interpretation of business interruption polices.
The outcome is awaited and clearly cannot deal with every possible scenario but it anticipated that the guidance will assist both insurers and the FCA (when dealing with complaints) in helping businesses.
So what’s the problem?
The simple fact is that the Covid-19 crisis is unique and something no one expected to happen during their lifetimes (unless you were the writer of the film Contagion!). Even when pandemics were considered and provided for in insurance policy terms, it is unlikely that anyone ever really considered that the whole country, Europe and further afield would effectively be closed down for a prolonged period.
Where an insurance policy (which is just a type of contract) doesn’t expressly provide for a particular eventuality, the wording of the policy has to be considered carefully to determine whether the policy covers the situation and more importantly for businesses, whether the insurer will pay out enough to cover losses.
Some common issues
The majority of business interruption policies were purchased alongside property insurance and unsurprisingly require there to be some form of damage or impact on the property before they will pay out. The issue with covid-19 is that whilst it is a natural crisis which has knocked businesses out of action (similar to a fire or floods etc.), it doesn’t strictly damage property as such. Properties may be contaminated but a deep clean will generally render them safe within a short period of time. Particularly as Covd-19 is a new contagion, no insurance policy issued before 2020 will expressly deal with it.
A business interruption policy is something a business never expects to rely upon and another key issue is that customers often assume they are ‘fully covered’ and are not aware of various exclusions and restrictions in the policies. One particularly interesting example came up recently where the insurer has said that the customer is covered for the covid-19 interruption but that the amount the customer expected to receive (several thousand pounds for three months up to a financial cap) was actually going to be reduced to a few hundred pounds which wouldn’t even cover one staff members’ wages. The reason given was that buried deep within the policy booklet (which the customer had never actually seen) is a definition of what appears to be an easily understood term which completely changes the meaning and understanding of that phrase.
Even with ‘non damage’ polices, i.e. where property damage is not required for a claim, there can be issues. Generally there will be a trigger event such as access being prevented but even then there can be confusion i.e. was it when businesses took the very sensible decision to protect their staff or was it when the government mandated closure? It will depend on interpretation of the policy wording.
So what should you do?
An insurance policy is just a type of contract so the starting point should be the wording of the policy itself (including any policy booklets). If it appears that there is or may be cover and you haven’t already, the insurer should be notified of a potential claim as the terms of the policy will often require prompt notification.
Advice should be taken where the wording is not clear, particularly if the insurer is not prepared to accept the claim or seeks to challenge the amounts claimed. Ultimately the FCA’s Court action may help here but for now the FCA has issued a statement detailing how it wants insurers to handle such claims. In particular, the FCA has made it clear that any decision should be supported by reasoning which can be disclosed to the FCA if required which should hopefully at least mean that claims are not rejected offhand.
If it appears there is a legitimate claim, but the insurer will not accept the claim, then action can be taken via the complaints processes and the ombudsman or even through the courts if necessary.
So what about the Brokers?
Depending on what information was given to the customer prior to taking out the policy there may be a potential claim in negligence against the broker. Brokers are not required to go through every single possible type of cover but they are under a duty to provide sufficient information to allow customers to make informed decisions.
The information given during the sales process should also not be misleading as it may lead to a claim in misrepresentation.
We predict that there will be a raft of misrepresentation (miss-selling) claims relating to information provided by insurance brokers in the coming months.
If you wish to discuss any issues you have regarding your business interruption policies please contact our Dispute Resolution team on 0115 9100200. www.actons.co.uk