Coronavirus continues to have a huge, unprecedented impact on how we run our businesses.
To cope with financial losses, many businesses are trying to claim under their Business Interruption (BI) insurance policies.
But how do you know if your BI policies will provide coverage and, if so, what losses will be payable by insurers?
The complexities of BI policy wording, the outcome of claims and how insurers make their decisions can be confusing. For COVID-19 related claims, some regulators are stepping in to resolve ambiguity in contracts.
In the UK, a test case has been brought by the Financial Conduct Authority on behalf of some policyholders to determine how the wording in certain policies should be. The recent first instance Court decision found in favour of the policyholders’ arguments on most issues, meaning that (for some policies) coverage exists in principle for Coronavirus related losses. Any appeal of that decision should be known in the coming weeks.
If you have a BI policy in place, we’ve outlined some important steps below. To discuss your policy further, please feel free to contact Russell Williamson.
Practical steps you can take
- Check the terms of your BI policy to determine whether you may have cover in principle and, if so, whether there are any requirements or conditions to be satisfied. The precise wording of your policy will be critical. Specifically:
- Is there a notification requirement?
It is often an express condition that an insured needs to notify the insurer about the relevant insured event and/or loss within a strict time limit. The policy may also specify certain formalities to be followed when giving notice. Many policies permit notice to given by an insured through its insurance broker, if applicable.
- Are there any relevant exclusions that may relate to COVID-19 or diseases/pandemics more generally?
After the outbreak of SARs in 2002, many policies now expressly exclude loss arising from contagious or infectious diseases.
- Are there applicable limits on the indemnity?
- The policy may have: (i) a maximum indemnity time period during which loss will be recoverable; and (ii) financial caps regarding the maximum sum that can be paid out. Moreover, many policies expressly set out the basis by which any loss of income, loss of profit or increased costs of working should be calculated.
- Do you need to obtain the insurer’s consent before you incur certain costs to deal with the pandemic?
- Is there a notification requirement?
- Check whether your BI policy is included within the selected policies under the FCA test case. If so, the arguments presented in the FCA test will be particularly relevant to your position.
- Keep, maintain and update documentary evidence of the losses that you are suffering or incurring. This may include: (i) up-to-date financial records and accounts (including for turnover and profit); (ii) records of employee absence and reduced staff costs; (iii) invoices for additional expenditure that you have incurred; and (iv) written records of business decisions that you have taken in response to the pandemic.
- If you have coverage in principle, consider setting out your claim in writing to your insurer. Although insurers will be closely monitoring the progress of the FCA test case, that case does not prevent policyholders from advancing or settling their own claims against insurers.
- If it is unclear whether your policy covers BI as a result of COVID-19 when you would have expected that it should have done, investigate the circumstances in which the relevant policy was placed – especially where the insurance was placed by a broker or other intermediary. One avenue to explore is whether your broker placed your insurance policy properly in accordance with your instructions.
- Check whether your policy is due to be renewed in the short term. Insurers may seek to amend future policy renewals by excluding or limiting cover for contagious or infected diseases.
If you have businesses in different countries, our international COVID-19 BI tracker will help you compare policies and claims made through regulators and courts in different jurisdictions. Bookmark our tracker now to stay up to date with developments and how it could impact your business.