On 23 March 2020, the government mandated non-essential businesses to close and ordered individuals to stay at home except in a few limited exceptions. This had a monumental impact on the UK’s economy, with airlines, retail, hospitality, sporting and tourism sectors suffering unprecedented disruption and financial loss. The Organisation for Economic Co-operation and Development forecasts an 11.5% drop in the UK’s GDP this year (irrespective of any potential ‘second wave’).
Whilst the government has provided numerous non-insurance, governmental measures (including the furlough scheme, VAT deferment, business rates relief, business grants etc.) to relieve the impacts of the pandemic, many businesses are still struggling with severe cash-flow difficulties and an uncertain future. Businesses are therefore increasingly seeking to rely on insurance cover obtained to protect against such extraordinary events. The government sought to re-classify Covid-19 as a “notifiable disease” to assist businesses in such claims.
Business Interruption Insurance
Business Interruption Insurance (“BII”) aims to provide relief for losses suffered as a result of a catastrophic event or disaster and return insured businesses back to the trading positions (as far as it is possible to do so) they were in before the event occurred. The level of cover and the events insured will be policy specific. Whilst some policies may cover the financial losses caused by Covid-19, others will not. The Association of British Insurers’ members estimate that they will pay out £900 million to policyholders for claims for Covid-19 related business interruption claims. However, many insurance companies are refusing cover.
Following the emergence of SARS in 2003, many insurance companies predicted future pandemics and accordingly sought to restrict their potential liability for such insurance claims. As a result, insurers introduced a list of exclusions, such as infectious diseases. Whilst insurance companies offered optional extras such as protection for notifiable diseases and non-damage, denial of access business interruption extensions, many policyholders failed to purchase such extensions.
Accordingly, many businesses with BII cover may find their policy is not broad enough to cover Covid-19 related business losses or alternatively specifically exclude such a crisis. In these cases, the insurance company may be justified in their refusal. However, in other instances it has been found that insurance companies are unreasonably refusing cover.
Financial Conduct Authority (FCA) guidance
The FCA has brought a test case against 8 insurance companies with a view to obtaining much needed clarification on ambiguous policy wording, key contractual uncertainties and ‘causation’ issues. The decision may result in previously rejected claims being re-assessed. The hearing is listed for 2 July 2020. We will be monitoring the developments with interest.
Have you been refused cover?
If you are a policy-holder of BII cover and believe that you have been unreasonably refused cover, please contact our business dispute resolution team.