Why businesses and insurers are in a stand-off

More than a year has now elapsed since a landmark test case was heard in the Supreme Court, so what has happened since policyholders were granted clarity on their business interruption insurance?

A decision handed down by the highest court in the land should have eliminated all doubt going forward. But disputes between firms and their insurance providers continue.

The latest figures show UK insurers have settled more than 31,000 business interruption claims, with close to 3,000 still awaiting resolution. The Financial Conduct Authority (FCA), who publish the figures, have revealed that the aggregate value of interim or initial payments is a shade over £303,000,000. The total of final settlements has now hit 10 figures, with well in excess of a billion pounds paid out in the UK.

The FCA is now ceasing to collect and collate monthly data, so perhaps it’s time to look at the impact of that all-important test case.

COVER STORY: Many insurers were refusing to pay out under the terms of their business interruption cover when the pandemic hit

We’ve all had two years or more of coronavirus-related challenges and there’s little doubt we are far more versed in the virus, its variants and the hazards it poses. But, looking back to the outset of COVID-19, it was new, it was unpredictable, and it was frightening.

The UK went into lockdown in an attempt to stem the spread of coronavirus.

Businesses were forced to close their doors with only essential workers continuing to travel to their workplaces. The government introduced their Coronavirus Job Retention Scheme, known as furloughing, with members of staff paid 80% (and latterly 60%) of their regular wage.

And with the public confined to their homes, businesses ceased trading. Virtually every private company was affected by the pandemic throughout 2020, and beyond, whether that means the suspension of their operations, closing down permanently or continuing to function but in a greatly limited capacity. As an example, it’s estimated that around 10,000 pubs, clubs and restaurants shut their doors for good in 2020.

SHUTTING UP SHOP: UK businesses closed, some permanently, due to COVID-19

Their insurance was intended to cover losses in the case of such events, specifically in cases of a notifiable disease, which the government declared COVID-19 to be in March 2020. However, numerous insurance companies took an unsympathetic approach to the cover they had for their customers. Traditionally, BI policies generally covered their customers for loss of revenue or an increase in operating costs due to physical loss or damage, for example flood or fire damage.

But COVID was a new challenge for everyone concerned.

Many of these insurance companies had, over several years, earned a reputation for prioritising their customers’ needs, rather than trying to find any and every available loophole with which to refuse paying out. But such was the impact of COVID that that changed dramatically.

CORRIDORS OF POWER: The UK Government’s declaration that coronavirus was a ‘notifiable disease’ did little to provide clarity for BI insurance customers

Although the government had made it clear COVID was a notifiable disease, this didn’t provide the clarity that businesses in dispute with their insurers wanted. Insurers had gradually made changes to their policies’ wording, ensuring that the diseases they provided cover for were specifically named within. 

Standard policy wordings did not always include the caveat ‘extensions’ to their policies, meaning they didn’t widen the scope of events to trigger cover under the policy. In fact, it wasn’t until around the time of the SARS outbreak (a viral respiratory disease believed to be closely related to COVID) in 2002 that prompted insurers to review their policies, with many choosing to exclude losses arising from infectious diseases, epidemics and pandemics.

If your business was refused a business interruption payment by your insurance company, you need to take steps to claim what you are owed. Barings Law’s team of legal experts can examine the finer points of your insurance documents and prepare your compensation claim. What’s more, we work on a no-win no-fee basis, which means there is no financial risk to you – if we don’t win your claim, you don’t pay a penny for our services.

Speak to one of our customer services operatives by calling 0161 200 9960 or click the icon at the bottom right of this page to start a webchat. 

Coronavirus Job Retention Scheme – the facts
  • One in four UK employees were furloughed at some point between March 2020 and June 2021 due to the pandemic.
  • Eight per cent of people who were furloughed were no longer employed in the three months leading up to June 2021.
  • In most industries, people in corporate management, directorships or in professional occupations were less likely to be furloughed.
  • Half of furloughed employees were furloughed for more than three months and about a quarter of people were furloughed for six months or more.
  • Employees in the hospitality, construction and recreation sectors were among the most likely to be furloughed.
  • A total of around 11.6 million jobs were supported by the CJRS at various times.

But, back to the coronavirus global crisis. At the point where COVID was officially declared a notifiable disease, the FCA got involved and looked into what they could do to aid the struggling small-to-medium-sized enterprises (SMEs). They carried out a High Court test case, with the intention of bringing clarity to the situation and removing doubt as to whether business interruption policyholders should be receiving the help they needed from their insurers.

That test case involved eight major insurers and 21 samples of policies and was aimed at representing the UK’s policyholders and challenging the insurers’ interpretation of wordings on their documents. The court found in the FCA’s favour, in turn helping policyholders who didn’t have recourse to insurers’ help. That ruling affected hundreds of thousands of SMEs in the UK, with business owners now turning back to the wording of their policies.

As is to be expected on official legal documents, especially in the case of contracts and insurance policies, the wording is all-important.

Since COVID-19 was only identified in the latter stages of that year or the early part of 2020 it is unlikely to be a named notifiable disease on BI policy documents. 

There is also the “non-damage denial of access” to business premises to consider.

This covers policyholders when they are, due to something other than physical damage, denied access to their own premises. The prime example of this would be preventative measures as a result of governmental advice. 

There is also the “loss of attraction” extension to consider.

This relates to specific events having a negative impact on a business because the event has caused a significant decrease in the customers (and potential customers) visiting the SME’s premises or using their services.

A large degree of uncertainty surrounded business interruption insurance and customers’ position in the wake of the devastating impact of COVID-19. And so the FCA sought to, in a statement published in May 2020, “seek legal clarity on business interruption insurance to resolve doubt for businesses who are facing uncertainty on their claims.”

WELCOME RETURN: Businesses were raring to go once again after lockdowns decimated trade

But, a series of larger, more complex claims on issues not resolved by the test case is on the way. 

The court system – backlogged as it is – is in the process of hearing numerous cases that relate to COVID-19 and business interruption insurance. 

There are a number of issues still to be resolved, including claiming for the closure – temporary or permanent – of multiple premises. One national chain of pubs and restaurants maintains that their insurers owe them hundreds of millions, a far cry from the company’s claim that the payable total is less than £18million, the vast majority of which has been issued already.

For many SMEs that have survived the worst of times, business interruption insurance was an essential lifeline. But a significant number of companies (of all sizes and in every sector) that relied upon their business interruption to help them recover from devastating losses are, in many cases, facing steadfast resistance from their insurance companies.

If your insurer is refusing to pay out and you feel their stance is unfair, you need to take legal action. Barings Law’s experts can go through your insurance documents and uncover the details that clearly evidence that you are entitled to a payment under their terms.

If you have any doubts, just give us a call on 0161 200 9960 for a free, no-obligation chat and see what we can do to help your business. Our no-win no-fee guarantee means you cannot lose out by making a claim.