Can I claim under my business interruption insurance policy for coronavirus-related costs?

With so many companies being severely affected by the pandemic, the monies they can claim under their business interruption insurance policy has become a key consideration for their owners and directors, and could even be an essential part of the business’s future viability.

Unfortunately, it has quickly become clear to many potential claimants that their basic Business Interruption Insurance does not cover closure due to Covid-19.

But my business has clearly been interrupted – why is this the case?

There are different types of business interruption insurance clauses, but in the main, a standard clause will cover ‘business closure due to a Notifiable Disease’ and then will list those diseases which are covered.

Covid-19 only became a Notifiable Disease on 5 March 2020, so in the great majority of cases, it is unlikely to be listed in any insurance policy as a disease that is covered by the clause.

Is any business interruption insurance paying out?

Some businesses may have more generous clauses in their policies, which for example list those diseases not covered rather than those that are, or have purchased an extension which covers any unspecified Notifiable Disease (though policies always need to read in the round).

This type of insurance may respond to claims arising from Covid-19, but we’re already unfortunately already seeing some (though not all) insurers trying to avoid providing cover under such a clause.

The most common argument we have seen so far is that it wasn’t Covid-19 that forced businesses to close, but the Government’s lockdown order on 23 March, which is outside the terms of insurance.

This seems unfair – is there anything that can be done?

The Financial Conduct Authority (FCA), which regulates the insurance industry, has already written to insurance company CEOs to state that for “policies where it is clear that the firm has an obligation to pay out on a policy……it is important these claims are assessed and settled quickly” and that “financial pressures on policyholders are not exacerbated by slow payment…rather, such claims should be paid as soon as is possible.”

Insurers which disagree have been told to contact the FCA with the grounds for their decision not to pay out and their reasons why this represents a fair outcome for customers.

Some insurers’ decisions to try and avoid cover may well go against their own regulator’s guidance and there will therefore undoubtedly be grounds for challenging such refusal to meet payment.

I think my claim is valid – what should I do?

Having had many years’ experience of dealing with insurance companies and helping businesses challenge insurance cover decisions, my initial recommendation would be to carefully review your policy and to get advice on whether you could reasonably expect it to provide cover for Covid-19.

If so, a challenge can be made to your insurer’s decision either through the Court, or for smaller businesses, through the Financial Ombudsman Service (FOS), which deals specifically with claims made by smaller businesses up to the value of £355,000 and can often provide a quicker decision than the Courts.

As more and more claims are made to the FOS, we would expect it to be established relatively quickly which way decisions on cover are going, so hopefully insurers will see which way the wind is blowing.

Further to this, the FCA stated on 1 May that it was looking commence a court action “designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers.” Therefore, the position on such claims continues to change rapidly.

Hay & Kilner offers a fixed-fee policy review service which will tell you if we feel you have a reasonable case for cover and which includes a first letter to send to the Financial Ombudsman Service which sets out your case.

For further information and a free initial discussion of your situation, please contact Hay & Kilner Law Firm on 0191 232 8345.

By Tom Whitfield, partner in the specialist insurance team at Hay & Kilner Law Firm in Newcastle