Insurance coverage disputes are one of the many unwanted sides of the commercial impact of Covid-19. Household names, like Hiscox and RSA, have indicated that they will either not meet claims under business interruption (BI) policies or that they will not respond in the way that their policyholders thought they would.
Insurers’ comments about the potentially cataclysmic impact of meeting all of the £1.2bn worth of claims they currently anticipate are rightly concerning businesses who thought that they had protection and fear that such dire warnings are just a device to avoid paying out. For them, the difference between a pandemic policy and business interruption cover that mentions infectious diseases and public restrictions on access to their premises is a distinction without a difference and completely immaterial. Insurers naturally take a different view and, paraphrasing them, are saying if you wanted pandemic cover you should have bought and paid for it instead of perhaps tacking on a modestly priced BI extension that was never designed, or intended to pay out in the face of a global pandemic that has shut down large swathes of the country’s economy.
Whatever your view on the insurers’ stance, I have no doubt that coverage issues will increase and that many businesses will struggle without the benefit of the cover they’ve paid for. I am also in no doubt that insurers will be facing a huge amount of claims and that the better prepared stand a better chance of being met, or met quickly.
The FCA’s decision to seek a declaration specific policy clauses is a welcome move that should bring clarity and save individual businesses the costs of separate challenges. The court’s decision will be eagerly awaited on both sides but ahead of it the first issues to look at if you think you have cover that should respond to the current crisis are:
- Check all your policies for any potential cover.
- Look at the policy’s coverage wording and exclusions carefully. How do they sit together, and how can you put your own fact specific situation within their combined wording?Take this example recently used by an insurer’s representative – standard BI cover was only intended to meet standard risks like fire or flood, or the short term impact of an infectious disease that’s been bought onto your premises. Could this be a realistic interpretation of your wording?
- Check the policy’s notification and claims procedures and follow them to the letter, for example, “preliminary notification of a claim in writing” may well not be the same as emailing your broker and asking it to tell the insurer.
- Work with your broker if needs be, but agree who is going to do what, how it will be done and by when. Monitor progress carefully and diarise key dates with plenty of warning before they come up.
- Think carefully about what losses are sensibly within your coverage. Overly optimistic claims are only going to give an insurer a second front to fight in addition to any dispute over whether the policy will respond at all.
- Think equally carefully about how you will evidence what you are claiming for. Work with your finance team and/or accountants to put sensible projections of likely lost profits together that are evidence based and as easy as possible to understand.
- Keep records of expenditure during closure and be ready to explain it in case this challenged.
- Be prepared for a robust discussion with your insurer if it pushes back on your claim but support your reply with a focused and properly reasoned response that address the key issues.
- Understand what options the policy may give you for complaining about or challenging the insurer’s stance and think about how you can resource, and fund, them.
- Think about the most appropriate forum to challenge any rejection. Smaller business and sole traders may be able to access the Financial Ombudsman’s scheme that looks at matters on an equitable, as well as strictly legal, basis.
- Get advice quickly if you’re unsure of your position, how to proceed or what to include in a claim.
