25th March, 2020
Declined insurance claims on business interruption policies
In the last few days the government has imposed significant restrictions on travel and activity within the UK in an attempt to slow the spread of COVID-19 / Coronavirus.
This includes an order for “non-essential” businesses to close, including many retailers, pubs and restaurants.
This strategy is understandable, but comes as cause for further concern for businesses in the leisure and entertainment sectors. Whilst the government has proposed a number of financial measures to support businesses during this period, many will still suffer significant financial losses and some will be forced to stop trading entirely (temporarily or permanently) as a result.
As the situation has developed there has been uncertainty as to whether losses caused by business interruption and closure as a result of the coronavirus outbreak will be covered by insurance.
Business interruption insurance usually forms part of a commercial property insurance policy, and most often provides cover for losses caused by physical damage to business property. In some policies this cover is extended to include closure of premises for other reasons and this may include closure as a result of an infectious disease.
However, it appears that such cover is rare – in a statement on 18th March 2020 the Association of British Insurers noted that “Only a very small minority of businesses choose to buy any form of cover that includes local closure due to an infectious disease.”
In the light of the above, businesses should not assume that any losses arising from interruption or closure as a result of the outbreak will be covered by their commercial insurance. This will depend on the wording of the policy and the circumstances of each individual case.
If you are considering making an insurance claim, or if you simply want to clarify your position, you should first carefully check the wording of any insurance policies which may be relevant. If you are unsure as to the meaning of any policy wording, you should contact your broker or your insurer directly, who should be able to clarify.
Some business owners may find themselves in a dispute with their insurer, where a claim is declined in circumstances where the business owner believes that their policy should apply. If you wish to dispute your insurer’s decision to decline a claim, the best next step will usually be to exhaust your insurer’s appeal and complaints procedures.
If the insurer does not change their stance and you wish to pursue the matter further, your options depend on the size of your business. Small businesses and individuals may take the matter to the Financial Ombudsman Service.
Larger businesses cannot use the Financial Ombudsman Service, but may be able to take further action against their insurer for their failure to pay out.
Those who can go to the Financial Ombudsman should bear in mind that the scheme has limited financial remedies which might not adequately meet their claim. As such, policy holders should seek legal advice before deciding on this course of action, in case it limits their ability to claim the balance of losses over and above what the Ombudsman can order.
Our experienced insurance dispute team has advised many clients over the past three decades. We’ve taken action against insurance companies over their refusal to pay out on many types of insurance policy – and with a high degree of success.
If you require advice on your position or wish to take action against an insurer, please contact Nick Clarke.
Dispute Resolution and Insolvency
Senior Partner and Head of Team
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