Rejected business interruption insurance claims
10th June, 2020
Many businesses have sought, in many cases unsuccessfully, to make claims on insurance policies for business interruption or other losses arising out of the Covid-19 pandemic.
This could be businesses whose customers are unwilling or unable to make purchases given the forced closure of non-essential shops and venues, or where staff are following government guidance to self-isolate.
The UK’s financial services regulator, the Financial Conduct Authority (FCA), has already stated that it expects insurers to be “clear and not misleading” and “fair and professional” in how they deal with their customers. However, many businesses will feel that insurers are still falling short of these requirements.
Business interruption policies
In some circumstances it will be clear on the face of the insurance policy that it was never, in fact, intended to respond to a global pandemic such as that which we are all facing. In particular, many policies will only provide business interruption cover if it arises from property damage. The FCA has acknowledged that insurers are entitled to reject claims in relation to such policies.
In other cases the policy wording will be less clear and businesses may legitimately feel that their insurer is wrongly withholding payment. For some, this decision may be the difference between the business surviving or failing. There are significant differences between policies and across insurer, and businesses should therefore not hesitate to seek advice if they are unclear about the terms of a specific policy.
In some cases, if the policy was purchased via an intermediary, the broker may also be able to provide assistance. However, brokers themselves may have given pre-purchase advice on business interruption cover, only to find out that there is a gap between what the customer understands the policy covers, and what is in fact covered.
Challenging rejected claims
One route of challenge to an insurer’s decision is via one of the well-publicised class actions. For example, the Hiscox Action Group is planning to take Hiscox to court in relation to allegations that legitimate business interruption claims have been rejected during the pandemic.
Another route of challenge is by a complaint to the Financial Ombudsman Service (FOS). This service is open to consumers and small and medium-sized businesses, ‘micro-enterprises’, charities and trusts. The service will be an attractive option for many businesses, as it is free and relatively quick (although it remains to be seen how the service keeps up with an increase in demand as a result of the pandemic). You will need to have complained to your insurer before bringing a complaint with the FOS.
A key benefit of the FOS is that the ombudsman is not necessarily bound to follow the law when making its determination, but must instead make decisions that are “fair and reasonable in all the circumstances”. Whilst the relevant law must be taken into account, this gives the FOS a wider discretion to reach a “fair” decision in the round.
There is a limit on the amount of compensation that can be awarded by the FOS, which is £355,000 for complaints referred on or after 1 April 2020 (FOS can recommend that further compensation be paid, but cannot enforce this).
The current position
The situation regarding business interruption claims is evolving daily. The FCA is seeking an urgent court declaration to resolve uncertainty for many customers making such claims. The FCA has recently published a representative list of policy terms it is asking the court to consider as part of this test case. The outcome of the test case will be binding on those insurers that are parties in the case. The expectation is that the case will also provide guidance as to the interpretation of other policies that are not in the sample.
The FOS has already noted that it will take into account any declaration when considering specific complaints. It has not, as yet, indicated that it will pause any complaints pending that declaration, although that seems likely.
Whilst the FCA’s approach is welcomed and it is hoped that the court decision will provide clarity for many, it will not determine all business interruption disputes. Further, to the test case will not proceed to a hearing until the second half of July. This will leave many businesses in an unenviable position in the meantime, although the FCA has also produced a consultation regarding some helpful draft guidance for insurers and intermediaries when handling complaints and claims impacted by the case.
At Ward Hadaway we are able to provide pragmatic, commercial advice to individuals and businesses of all sizes in relation to business interruption claims. In particular, we would be delighted to review any policy terms to consider whether business interruption coverage is provided (to include consideration of the impact of the FCA’s test case in due course, if appropriate) for a discounted fixed fee of £350 plus VAT for an individual policy.
In addition, eligible North East-based SMEs may be entitled to apply for up to 40% funding towards up to £4,000 of legal advice as part of Ward Hadaway’s collaboration with RTC North and its “Scale up North East” programme. Click here for more information. It may be possible for us to provide advice on business interruption issues with assistance from the scheme.
For advice on potential insurance claims or other commercial disputes, whether COVID-19 related or otherwise, please get in touch.
[A version of this article was previously published on 15th May and has been updated to reflect the changing position].
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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