Covid-19: Business Interruption Insurance Claims
During the current Covid-19 pandemic, we have seen businesses such as cafes, bars and retailers shut their doors to the public. This lack of trade has had a devastating financial impact and, as such, many businesses are looking to their Business Interruption Insurance (“BII”) to cover some of their losses.
Regrettably, a number of insurers have adopted a restrictive interpretation of their policy wordings and have declined claims, in some circumstances where there are good arguable grounds that cover should be in place. This is not surprising given that the insurance industry fears significant losses through BII. However, businesses have started to fight back. Hiscox was the first insurer to come under fire via a potential class action by night time economy businesses. More recently, another hospitality action group has said that it will focus group litigation against QBE and Aviva. Further, the Financial Conduct Authority (“FCA”) has taken the unusual step of preparing a case to test the legal position of certain policy wordings. It is reported that it hopes to get the case heard in the High Court in July.
This article outlines some of the types of policies that exists and what businesses can do if they believe they have a claim or have had a claim declined.
BII Basics
BII is a specific type of insurance which entitles the policyholder to claim for loss of profit or additional business expenses caused by an “event” covered under the policy. Until recently, the common events that would lead to a claim would include floods or fires. The policyholder must show that the disruption was caused by the event insured, rather than a mere business decision taken during the event. To take a topical example, if a business is forced to stop trading as a consequence of the pandemic, then loss of profits would potentially be recoverable. In contrast, losses owing directly to furloughing key staff members who would otherwise generate profit will most likely not trigger the insurance.
To determine whether the current pandemic is a triggering event, the specific policy need to be carefully analysed. BII policy terms are not ‘standard’ and we have advised clients on a wide range of wordings. Each policy should be considered individually and with specific regard to the impact on the business in question. Some of the common themes we have seen are summarised below.
1. “Specific Diseases” Wording
Insurers, such as for example, AXA and Allianz have opted to include a specific list of covered diseases in their policies. Some insurers will seek to argue that the list is exhaustive and would not be obliged to pay if a disease not on the list is the triggering event. Covid-19 is unlikely to be specifically mentioned in any policy as it is a new disease and, as such, businesses with these policies have had claims declined.
However, the list should be carefully analysed. It may be arguable that Covid-19 claims should be covered if diseases such as SARS or other similar viruses are specifically mentioned. Covid-19 is categorised as a SARS virus by the World Health Organisation. Equally, there may be scope of argue that the disease list is intended to be indicative rather than exhaustive and that there was intended to be scope to widen the list in appropriate circumstances.
2. “Notifiable Diseases” Wording
Other policies have a much broader approach and make references to “notifiable diseases”. A “notifiable disease” is often one that is included in an extensive list found in the Health Protection (Notifiable Diseases) Regulations 2010. Covid-19 was added to this list on 5 March 2020 and it follows that any claims arising from ‘events’ thereafter are potentially covered.
Nonetheless, insurers have recently rejected claims referring to a “notifiable disease”. One example is Hiscox, which rejected claims despite the policy stating “an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority.” Hiscox (and other insurers) have stated that any disease which was not a notifiable disease at the time the policy was entered into will not be covered.
It is unclear how a court will interpret this in the current climate and much depends on the precise applicable wording. Prior case law in relation to SARS suggest that events arising before that disease became notifiable will not be covered but those arising afterwards would be. In essence, it is the date of the event, not the commencement of the policy that counts. Each policy and claim should be looked at on its own facts but policyholders should take comfort from the fact that Covid-19 was added before lockdown, and therefore any likely business interruption, took hold.
3. Premises Wording
There are however also common policy wordings that relate to closure of businesses owing to public policy or inability to enter the place of business, with human disease one of the listed ‘events’. Sometimes, there is ‘proximity’ provision requiring the outbreak to be within a certain radius of the premises.
When the government announced the lockdown in March, all “non-essential businesses” were forced to close, despite not experiencing an outbreak of the virus on its premises. Certain insurers (including Hiscox) have argued that their policy wording only covers Covid-19 as a triggering event if there was an outbreak at the place of business. Others have suggested the radius clause has not been met.
Common sense tells us that a nationwide lockdown has nationwide effect and this is an unprecedented scenario. There may be real scope to argue that cover should apply, notwithstanding the absence of an outbreak at specific premises or within a certain proximity.
Making a Claim Under Your BII Policy
As noted, many insurers have taken the approach of declining all claims. It is clear that this approach is receiving kick back, with the FCA calling on insurers to view these policies in a flexible manner and some businesses congregating around group litigation.
If you are a business owner who has any questions in respect of your BII, we recommend that you:
First contact your broker urgently. You will have policy obligations to report claims promptly and your broker will be best placed to advise you.
Keep a record or diary notes of how your business has been impacted financially and how this specifically links to the pandemic. If you can persuade an insurer that your claim should in principle be covered, you’ll need to prove your losses with some degree of clarity.
If you are receiving resistance from your insurer, we would invite you or your broker to get in touch with us directly. We have significant experience advising policyholders, brokers and insurers on a range of policy coverage issues. We are always happy to have an informal conversation in the first instance about your options and offer practical assistance to enable you to maximise your chances of recovery.
Loney Stewart Holland LLP is a specialist dispute resolution practice headquartered in Bristol with a base in London. Please visit our website at www.loneystewartholland.co.uk for further details on our team and the services we offer.
Alistair Stewart
M: 07869 435226
astewart@loneystewartholland.co.uk