Business Interruption claims: where you stand

Insurers in the UK are honouring their commitments to their customers

Two-thirds of business interruption insurance payouts have now reached policy holders in the UK.

The latest figures show that BI payments are now being paid, with 68.4% of test case policyholders now having received at least an interim payment under their insurance.

The aggregate value of these payments, where final settlements have been issued, is £766,598,035 across a little under 25,000 claims. A further 4,000-plus claims yet to be settled have seen interim or initial payments made, to the tune of £329,368,933.

This means that more than £1.1billion in claims has been issued by insurance companies. The total represents an increase of almost 7% on the £1.03bn that had been distributed according to the Financial Conduct Authority’s September data.

While this represents good news for companies holding business interruption policies, payments are being settled at a slower rate than is ideal. Most of the slower insurers have now managed to make at least initial or interim payments on half of their accepted claims.

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However, there are numerous instances where the interim payments are merely nominal amounts rather than payouts that reflect the true value of the claim, in order to indicate to the FCA’s investigators that money is being paid in good faith by BI insurers.

If your business is being left behind, or your business interruption claim is not being handled as you believe it should, enlist the help of legal experts who can prepare claims for you to take on your insurer – and win.

Barings Law’s team of experts can use their know-how and experience to help you get the money your business needs and is entitled to.

Call 0161 200 9960 for a free, no-obligation initial consultation or click the webchat icon at the bottom right of the screen to speak to one of our advisers.

The UK’s small-to-medium-sized enterprises (SMEs) were given better clarity on their business interruption standing when the FCA’s Test Case was decided in January 2021. However, it seems there are still contentious issues that provide uncertainty in BI insurance claims and insurers appear to be making the most of it in order to refuse claims.

These grey areas centre primarily upon the wording of BI insurance policies.

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The High Court decision on the Test Case did not explicitly address the issue of policy wording where the insured instance, such as a notifiable disease, occurred at the SMEs’ place of work, and therefore whether they have an obligation to pay out on the policy in question.

This lack of guidance has left many customers in the dark, wondering if their insurers will help when their ability to trade has been stopped.

It is the policies’ wording that is crucial in business interruption claims and so enlisting the assistance of a legal team who can ensure that your claim is professionally prepared, and who can dissect the details of your policy is essential.

Forensic assessment of policy wording is essential as there is usually a strong argument for interpreting the cover in more than one way, meaning the SME in question can benefit greatly.

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A policy’s wording can restrict the level of damages that a company can claim, of course. But a detailed examination can also uncover interpretations that lead to a more favourable outcome for the SMEs.

For instance, some policies enable their holders to claim for losses across a number of business premises, even without them having to satisfy the criteria for COVID-19 being evident at each site.

The Test Case decision in the High Court and the guidance from the Supreme Court of the United Kingdom (UKSC) provides little or no clarity on the occurrence of notifiable disease at business premises, giving many insurers an argument for refusing claims.

What is apparent is that the courts still need to provide clarity on these issues. Without clear guidance the UK’s insurers and their customers cannot make adequate plans for their short and long-term future.

Another aspect of business interruption insurance needing further clarity is the quantum of claims.

Once an insurer has accepted a claim, attention turns to the value involved and the level of cover (and therefore the limitations) of a BI policy. Reports of ongoing claims seem to suggest that insurance companies are not disputing liability, rather that their liability is limited under the small print of the insurance.

Interpretation is key and judicial guidance on policy interpretation is still needed.

Still have questions? Keep reading, we may have the answer to your query here:

What is Business Interruption Insurance?

Business owners often make the mistake of believing that any losses, for instance those arising from a fire at their site, will be covered by their buildings or contents insurance policies.

Unfortunately, while these policies can help with remedial work on damaged premises, they do not cover the policy holder for their losses arising as a consequence of the interruption. Many business owners have now discovered this, to their cost. The COVID pandemic has led to businesses in every sector suffering substantial losses due to the UK-wide lockdowns and BI insurance has proved to be the difference between closing down and continuing.

But businesses that do have BI policies have had difficulty making successful claims on their insurance for interrupted trading. As we’re sure you have gathered by now, the wording on your policy documents is key.

Does my policy cover infectious diseases such as the coronavirus pandemic?

The first thing for a small-to-medium enterprise (SME) owner to consider is being able to show what caused their loss in trading ability. This may not be as easy as it initially appears.

Most policies’ wording includes cover for ‘losses caused by governmental restrictions as a result of notifiable human disease breaking out.’ If your policy is described in this way, or something approaching that, there are still a number of pitfalls to be negotiated. Many businesses elected to close due to the pandemic, even if they were not legally forced into ceasing trading. Some non-retail businesses may find their insurers reluctant to pay out on that basis.

Another sticking point for SMEs is the period of time relating to their cover. A claim for losses prior to March 5 2020 – the date COVID officially became a notifiable disease – is likely to be rejected.

Furthermore, a business suffering losses because their premises have been contaminated may be in for a contentious battle with their insurer, who are likely to argue that some losses would have occurred anyway because of the general impact of the coronavirus.

What effect will mitigation of loss have on my claim?

Mitigation is likely to be a point of contention in most Business Interruption insurance claims.  Businesses have a duty to do whatever they can to minimise their losses, even if this is not specified in the terms of their BI policy.

The vast majority of policies do mention mitigation as a ‘condition precedent’. In practice this means that a company runs the risk of losing its right to a claim if it has failed to take reasonable – often described specifically as ‘all practicable’ – steps to minimise its losses.

For those businesses that could have continued to trade during the pandemic, insurers may, in some cases, claim that a failure to adapt resulted in higher losses.

How does the government’s furlough scheme affect any claim I make?

This could perhaps be the biggest point of contention for SME owners submitting claims to their insurer under business interruption. Insurers may take the approach that a business claiming under the Coronavirus Job Retention Scheme did not approach furloughing staff sensibly.

This could be because they did not use it enough, because they topped up their employees’ salaries – which means they failed to limit their losses – or they were too reliant on furloughing, which limited their ability to recover adequately.

Generally, the FCA and the government both insist that specific grants to support businesses during the pandemic will not be deducted from any business interruption claim payout. Insurers’ approaches may differ depending on – yes, you guessed it – the policy wording and how it relates to your business’s circumstances.

What other circumstances could affect my policy?

Usually, Business Interruption policies include a clause that allows insurers to reduce the amount paid out if the business would have been affected by market trends, irrespective of the impact of, in the vast majority of current cases, COVID-19.

Most businesses making insurance claims will be able to point to COVID-19 as the result of their sector’s downturn. However, other factors may also be to blame. For example, the UK’s gross domestic product fell by 9.9% last year – the biggest GDP fall in more than three centuries – with no sector going unscathed by the effects of the coronavirus. drop in oil prices in the first few months of 2020 had nothing to do with COVID-19 and its knock-on effect will have impacted the market trend in many sectors.

How much could I be awarded if my claim is successful?

So, your business has established a genuine case for a claim under their BI insurance. That isn’t the end of the story, though.

There is probably still a great deal of to-ing and fro-ing with your insurers to get through so that the SME can be sure what they will be due from a policy payout.

At this advanced stage of your BI claim, you may end up arguing the details of evidence being needed to show the losses you have suffered; the insurers may have imposed a limit on the indemnity period or simply have a limit on the amount they will pay on a Business Interruption payment.

If you want an expert legal team to examine your policy wording and take action to claim the insurance payment you are entitled to, contact Barings Law today by calling 0161 200 9960 or by starting a webchat with a click of the bottom-right icon.