There is controversy growing over insurers refusing to cover losses that have arisen from COVID-19; especially, under Business Interruption policies.
Lots of businesses have been paying these premiums for years. For policies that supposedly include cover, therefore the insured’s believed they are protected. Some insurers have insisted that their policies do not provide protection and that business insurance policies have never been intended to respond to a global pandemic like the one we are currently facing.
The Financial Conduct Authority announced on the 1st May 2020 that it was seeking an urgent declaration from the court. This was to provide clarity for business owners with insurance on whether their policy will provide cover. There is much uncertainty around the logistics of this and to what extent of the certainty it will provide.
There are a few crucial steps that businesses should take for now to put themselves in the best position possible. This article guides businesses to establish whether their insurance covers them how they should go through with claiming with their insurer and what options may be available to them if their insurer denies cover.
What is Business Interruption insurance?
Business Interruption Insurance is often provided along with property insurance. Cover under standard wordings is usually triggered where there is physical damage to the insured property. Furthermore, it may cause a loss of revenue or increases the business’ operating costs. F
For example, if a business can no longer operate because a fire damages its premises. Therefore resulting in loss of income or increased costs, the business may then be entitled to cover.
This sort of standard wording may not be responsive; mainly where the losses are caused by an infectious disease or by particular actions taken to combat it. Many insurance policies include extensions that widen the scope of the events that can trigger Business Interruption cover.
Which extensions might be relevant?
There are three types of extension you should look out for as a business owner:
Specified or notifiable disease extensions secure cover for any losses caused by infectious diseases. Where there have been cases of the disease within the insured’s premises. Some policies do set out a list of specified illnesses that you can receive cover for. Since COVID-19 was only first noticed in early 2020, it is not likely to be named as an infectious disease that you can claim on. There are, however, other policies that provide cover for losses caused by notifiable diseases. On 5th March 2020, the UK Government formally declared COVID-19 as a notifiable disease. This was to help facilitate insurance claims by businesses that the virus has had a negative effect on.
Non-damage denial of access extensions can provide cover when you are prevented from access to a business’s premises. Usually, by something not related to physical damage to the business premises. The policy will explain what events causing the prevention of access can trigger the cover. For example, most policies include protection where access to business premises has been prevented. Particularly when under order or advice of the UK Government.
Loss of attraction extensions provides cover to businesses where certain events have hurt revenue. Usually, where the event causes a decrease in the number of customers. Alternatively, it may affect potential customers visiting that business’s premises.
As with any legally binding contract, the wording of the extensions will be vital. Insured parties should sift through their policies and try to anticipate any situation in which insurers may seek to deny the cover. This includes arguments about what caused the loss being claimed and if the insured event was the cause.
What parts of your insurance policy should you be looking at?
Like all insurance products, Business Interruption policies usually carry a list of exclusions. The insurance market has been looking over its exposure to epidemics and pandemics since the SARS outbreak of 2002-2004. Even more policies now particularly exclude any losses that may arise from infectious diseases.
When looking at your claim, it is crucial to establish what level of losses you can receive cover for if the policy does happen to respond.
Business Interruption insurance records a business’s annual income under a column headed “Sum Insured”. It can be assumed that losses up to that amount are covered. However, the level of Business Interruption cover available is limited. This could either be by reference to a specific amount or a loss of income arising in a specified period. The policy may also contain endorsements which may limit the cover available to businesses in some situations.
Many policies set out the basis’ to calculate any loss of revenue, loss of profit or increased costs of working. The detail of the calculations can have a massive effect on the amount of cover available.
What practical steps should you take?
Many insurance policies require the insured to notify their insurer as soon as they are aware of any event that could give a reason to claim. It would be best if you spoke to your insurer as soon as possible. If you have not already done so, it ensures that you are giving your insurer notice of a potential claim. You should notify your insurer even if you are not sure whether the policy will provide any cover. Alternatively, if it is not yet possible to work out the losses suffered.
You should make sure that you create and maintain the evidence you will need to support any claim. The evidence required depends on the part of the policy under which a claim is made: the way the policy is worded and the types of losses that are covered by the insurance.
Still, the necessary evidence is likely to include:
Any financial records are showing the loss of revenue caused by Government measures. A decrease in demand. Any staff absences. Difficulties in obtaining stock from suppliers. Also, evidence of any additional money spent as a result of COVID-19.
You should keep records of decisions that the business has taken to respond to COVID-19. Especially if they show a financial impact on your business during this period. Insured parties are also required to take necessary steps to mitigate any losses you may have as a result. Make sure to keep records of any costs you have saved. This can be a reduction in salary costs for staff whom you may have furloughed as well as any savings that you have through changing contracts or reduced overheads.
If your policy is coming up to its renewal, be aware of any changes your insurer could make. They might try to limit or exclude any cover for infectious diseases. There are some changes in the level of cover available; they are possible due to the situation. Insurers should highlight any changes to the cover well in advance of renewal.
What should you do if your insurer denies the cover?
It is advisory that if your insurer has rejected your Business Interruption claim, you should push back. You can base this on the fact your policy has been written a certain way. Furthermore, it could make you believe that the policy you have with the insurer does provide cover.
Suppose you and your insurer are not able to agree on the cover that should come with the policy. Sometimes the issue may need looking at by a third party. An insurance policy is the same as any other contract, and the Courts ultimately have jurisdiction to decide the obligations of both parties under the agreement.
It is worth considering that you will not, in all likelihood, be required to take this step immediately. It should be possible to await the outcome of the court case, which the FCA prepares.
Instead of using litigation, the Financial Ombudsman for Small Businesses (FOS) can settle disputes between small businesses and financial services providers. It also has the authority to award compensation of up to £355,000 if needed. The FOS can help businesses that have a turnover of less than £6.5 million or proof of balance of less than £5 million and that have fewer than 50 employees.
The FOS is already providing warnings that they are experiencing high demand at the moment. Due to the current situation, complaints can take longer than usual to resolve due to this. However, taking this route could be faster than litigation. You should note that in most circumstances, a business does need to refer a complaint to the FOS within six months of receiving the final response from the financial services provider that you are looking to challenge.
If you are struggling to agree with your insurer or are feeling confused by what is going in the world at the moment; are worried about how this may be impacting on your business, then contact one of our commercial/business solicitors today.
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