Peter Tilsed, director of Luker Rowe insurance brokers explains the current situation regarding Covid19 and business interruption insurance claims.
As an insurance broker my duty is to my client and we have in the past been successful in obtaining claims settlements where an insurer has been unreasonable. This article is therefore not to justify the present position, but purely explain it.
The Court Case
The Financial Conduct Authority (FCA), which is the insurance regulator, has taken the very unusual decision to take a test case to court to see if payments should be made under business interruption policies. This was to avoid a substantial number of individual cases being brought which would take longer to get to court and would be costly for policyholders. The Hiscox Action Group, which specifically represents companies in the event industry and has insurance with Hiscox joined the action.
The case was held over eight days in July and the judge has said he expects to issue a judgement in mid-September.
So will this resolve everything?
Unfortunately, probably not, but it should help. Firstly, whichever way the verdict goes there is likely to be an appeal. However, it has been suggested that if this happens it goes straight to the Supreme Court to obtain a quicker decision.
Because there are hundreds of different insurance policies available all with different wordings it has not been possible to take all to court and therefore only a small percentage are being tested. All the major insurers will have issued numerous different policy wordings, and many of these have been for specific schemes and the majority of wordings being tested are not the insurer’s most common wording. So even if it is decided that a policy issued by insurance company A should pay out, it doesn’t mean all their policies will.
What are the arguments?
Insurers have always maintained that it was never their intention to pay out for pandemics. Quite simply in a worst-case scenario many would not have sufficient funds to make payments for such substantial losses. The court will of course say that intention is irrelevant and what the policy wording states is the important issue.
Business interruption policies were initially designed to cover losses at your own premises from insured perils such as fire and flood. Over the years cover has been extended to include many extensions to cover. This has included in some policies extensions named “notifiable diseases” or “prevention of access”. As with any insurance policy, they will not cover everything, and the full wording needs to be read.
Notifiable diseases is a fairly recent addition to policy wordings and was intended to provide cover where something specifically affected your own premises (Covid I hear you all cry). The aim was if for instance there was legionella discovered at your own premises which forced a closure and a loss to you, then this would be covered. The majority of policies specifically listed the diseases it provided cover for, and of course as Covid-19 didn’t exist when the policy was issued, it wasn’t included. Some policies did just say “notifiable disease” and of course the government did finally class Covid-19 as notifiable. The court will then be looking at many other factors including the “but for” argument below.
Prevention of Access (sometimes called denial of access) again was added to policies for specific reasons. The classic example being that if your property was not damaged, but a serious fire at the next door premises made it unsafe to enter your premises, your losses would be insured. There are many other examples of this, and it does provide very valuable cover. The government of course closed some premises such as pubs and hotels, but not others and the argument is does this fall within the cover? Policies provided cover if this was due to an event within a certain vicinity, sometimes within 1 mile and in other policies up to 25 miles. Whilst in urban areas there will be a substantial number of cases, in rural areas is it necessary to provide proof that somebody had Covid19 within this area? Or is this irrelevant as their premises were closed regardless of cases within the vicinity?
The ”but for” argument
The “but for” argument is used in many legal cases. In simple terms the question is were a company’s losses caused by closure of their premises, or was it due a national pandemic which stopped people going out or attending events. So, the court will look at where premises have closed, would they have losses “but for” the closure or would they still have had the same losses. Would a hire company still have had the same losses if they had not closed their business than if they had closed, because due to Covid19 there were no events where they could obtain an income from hiring their goods. Therefore are their losses due directly to the closure of their premises.
This was one key argument used in court on which the judge will have to decide upon.
The judgement is awaited
Everyone hopes that once the judgement is made is September this will not only give a definite decision to the specific cases taken to court, but also clarity for other policies which may have similar but different wordings. The court case is of course about policyholders in all different types of industry and the judgement will therefore not be industry specific which may leave further questions unanswered.