Ever wished you had a crystal ball?
That's certainly how business owners are feeling if their insurance cover excludes non-damage related business interruption (BI), such as coronavirus.
There is a glimmer of hope for businesses whose policies include non-damage denial of access, restrictions imposed by public authorities and - you guessed it - infectious diseases.
Covid-19 is not specifically included or excluded in the majority of BI insurance policies, because most drafters didn't possess crystal balls or watch this TedTalk by Bill Gates in 2015.
Testing for coronavirus claims...
Both insurers and policyholders are confused about whether coronavirus-related BI claims are valid, with many claims being systematically rejected by insurers hoping to avoid liability. Insurers are relying on the ambiguities in their policies to reject claims, as they had not anticipated the high costs and losses due to BI arising from coronavirus. But why should insurers' lack of foresight give them the right to reject claims?
This is why the Financial Conduct Authority (FCA) has asked the court to consider the policy wordings and their application to the Covid-19 pandemic. The FCA is presenting a test case of representative samples from 17 policy wordings of 8 leading insurers to the High Court. The court will examine the wordings in minute detail to decide whether the policies clearly intended to exclude an event such as the global coronavirus pandemic.
These policy wordings have been selected from hundreds of sample policies with similar clauses, so the decision in the test case will have a wide impact on the outcomes of BI insurance claims during Covid-19. It pays to be pedantic in a pandemic, especially when many businesses are depending on this cover to survive.
The final trial hearing on the 20 July will be available to live stream from the court. Details about the court timetable and how to follow the case can be found here on the FCA's website.
What will the courts look at?
They will consider what the drafter of the policy intended at the time - did they intend to exclude pandemics? This seems unlikely as most insurers weren't aware of the potential for a pandemic that would impact business continuity to the extent of coronavirus. The court will judge whether general exclusionary wording is enough for insurers to refuse to cover BI caused by the pandemic.
They will ask: are commonly used phrases in policies such as ‘notifiable disease’ or ‘human infectious disease’ intended to cover coronavirus, the most impactful infectious disease of our time? Some policies define the terms, specifying what the insurer considers to be a ‘notifiable disease’, but many are unclear. In fact, the definitions often add to the ambiguity! The less clear the insurer's intention, the more likely a court is to find in the policyholder's favour.
What can you do in the meantime?
To assess the merits of a claim, each policy must be considered in full to establish whether it was intended to exclude Covid-19. The first place you should look when considering whether you have a potential claim is in the policy documents, including your policy schedule and summary of cover and any other ancillary documents you have. If you do not have copies of these documents, you should request them from your insurer or insurance broker.
The FCA has published guidance to clarify its expectations of insurance brokers and insurers for how to handle BI claims whilst the test case is ongoing. The guidance requires insurers and brokers to consider how coverage decisions may be affected by the final resolution of the upcoming court decision. They must also proactively identify policy-holders who may be impacted by the test case and keep them in the loop.
The Financial Ombudsman (FOS) is able to assist micro entities and small business with insurance claims. Before submitting a claim to the FOS, companies must first submit a complaint to their insurer. If the complaint remains unresolved after the 8-week deadline for a final response, the business can make a complaint to the FOS to review the decision. This option is a more cost-efficient process than bringing a court claim, as businesses can seek support directly from the FOS without the need to appoint lawyers to represent them (although they may still choose to). A link to the FOS complaints website is here for those considering this route.
Don't wait for the test result to submit a complaint to your insurers or to the FOS. It is better to get the process underway sooner rather than later as these things can take time. The judgement in the test case is likely to provide much needed clarity, which will hopefully place additional pressure on insurers to settle existing claims and complaints.
What if you aren't covered for coronavirus?
Even if claimants do not have BI cover that includes coronavirus, they may have potential claims against their brokers or other intermediary for providing inadequate advice. When considering whether to bring a claim against your adviser, you may wish to check whether your business has legal expenses insurance cover (LEI). This insurance could provide a way to fund your claim, meaning that you will not have to use important business reserves to meet the legal costs.
Can we predict the future?
It is likely that in a post-coronavirus world, insurers and businesses will take steps to ensure their policies and contracts will be drafted specifically to exclude pandemics and epidemics, or will require an additional premium to include this cover. This could place more emphasis on risk management and business continuity planning. Regulated businesses may well be required to have higher reserves to ensure they are prepared for similar events in future.
If you've experienced issues with BI insurance claims, please comment or share your insights and experiences. Feel free to email us if you have any concerns about your business as a result of worrying responses from your insurers. We will happily guide you in the right direction.
Co-authored by David Martin and Shauna Roberts
"We want to achieve clarity for all concerned in an unprecedented situation. To do this, we are taking a representative sample of cases to court. The FCA will put forward policyholders’ arguments to their best advantage in the public interest." - Financial Conduct Authority