The coronavirus pandemic and the Governmental controls imposed as a result of it are causing a substantial level of financial loss and distress to businesses, in particular (although not solely) to SMEs. Many policyholders have subsequently sought to claim for these losses under their Business Interruption (BI) insurance policies. Many business customers have had valid claims rejected by their insurer.
Given the complexity of business interruption claims and the legal uncertainty surrounding their enforcement (the FCA have issued a test case recently in the High Court), it is is essential that you seek expert legal advice early in order to prepare your Business Interruption Insurance claim.
What is Business Interruption insurance?
Business interruption insurance covers businesses for loss of income during periods when the business cannot trade as usual due to an unexpected event.
The aim of BI insurance is to put a business back in the same trading position it was in before the unexpected event occurred.
What does Business Interruption insurance usually cover?
Normal claims would ordinarily encompass events such as flooding, storm damage or fire and cover may be provided for:
- Profits: Based on a business’s prior months’ performance
- Fixed costs: for example operating expenses and other incurred costs of doing business.
- Temporary relocation: Some policies may insure the cost moving to and operating from a temporary business location.
- Extra expenses: reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operating.
- Employee wages: Such coverage can aid a business owner make payroll when they cannot operate.
- HMRC Taxes: Tax coverage can ensure a business can pay taxes on time and avoid penalties.
- Loan repayments: Insurance could cover monthly loan repayments even when the business is not generating income.
Has your insurer denied your business interruption insurance claim during COVID-19?
There are policies where it is clear that the insurer has an obligation to pay out on a policy (i.e. policies that are not solely related to property damage). The main grounds of refusal may include the following:
- unless a business was ordered to and did close completely there was no inability to use the premises within the meaning of the insurance wording, and unless it ceased to trade completely, its activities were not interrupted and so cover is not triggered.
- guidance issued by the government advising a nationwide lockdown was according to some insurers not defined as a “restriction” “imposed by” a public authority (note: the FCA disputes this contention).
- Some insurers argue that their policy wordings do not provide cover in the case of pandemics (note: the FCA disputes this contention).
- Business loss did not “result from” the necessary local disease occurrence or danger but instead were caused by the wide-area pandemic and so cover is not triggered (note: the FCA disputes this).
- As to causation and quantum of any claim, insurers may state in their denial that most losses would have been suffered anyway, even but for the insured peril/business closure, for example because of the broader Covid-19 pandemic, self-isolation and social distancing.
Which insurers claim denials are currently being assessed by the High Court?
The FCA named eight insurers in its Particulars of Claim submitted to the High Court in the test case on the validity of insurers denying business interruption claims during the coronavirus pandemic. Other insurers will most likely be denying claims, but at present the following eight’s policy wording is subject to the FCA’s test case:
- Arch Insurance (UK) Limited;
- Argenta Syndicate Management Limited;
- Ecclesiastical Insurance Office Plc;
- Hiscox Insurance Company Limited;
- MS Amlin Underwriting Limited;
- QBE UK Limited;
- Royal & Sun Alliance Insurance Plc; and
- Zurich Insurance Plc.
Is my business entitled to Business Interruption insurance?
Specific advice can only be provided by this firm once we have been instructed to review your insurance coverage and other supporting documents. However, the FCA believe that insurers should be liable for paying out for business interruption claims related to the coronavirus pandemic and the subsequent government lockdown restrictions placed on UK businesses.
Most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic.
However, for the remainder of policies that could be argued to include cover. There are policies where it is clear that the insurer has an obligation to pay out on a policy. For these policies, it is incumbent on the insurer to assess and settle these claims quickly. Financial pressures on policyholders should not be exacerbated by slow payment, rather, such claims should be paid as soon as possible.
Why use a Specialist Business Interruption Insurance Claim Solicitor?
We work to achieve our client’s interests by attempting to negotiate with the insurers wherever proper and commercially sensible to do so. When the time comes to issue legal proceedings we know how best to do so. If a without prejudice settlement approach is unsuccessful we seek on behalf of our client both litigation funding and after the event insurance policies and prepare and issue a claim without delay. Members of our legal team are also insolvency and winding up petition experts so if our clients face winding up proceedings or appointment of receivers as a result of a invalid denial of insurance coverage we can quickly assist and advise in these areas.
Our Business Interruption Insurance Lawyers get the best results
We endeavour to make the process as stress-free as possible for our clients and seek to eliminate the possibility of business or litigation failure. We know that each client’s case and business is unique, therefore we adopt a bespoke approach tailored to suit the client’s circumstances. We provide specialist senior legal advice from solicitors and barristers (including at QC level) at the outset when it absolutely matters in choosing the best strategy to follow. We are regularly instructed by regional solicitors’ firms to give specialist litigation advice and support in litigation cases. We assist by:
- Issuing legal proceedings & drafting documents/pleadings to support the insurance claim;
- Assisting you in preparation of evidence to support your Business Interruption insurance claim case;
- Appointing the right insurance experts to ensure the best chance of success in litigation;
- Appointing forensic accountants to assess and report on the refunds and consequential losses due;
- Liaising with the bank and the Court and/or the Financial Ombudsmen Service;
- Providing first class Court representation and advocacy; and
- Developing (and aiding implementation of) strategies that allow the business to continue.
Please note: Claims Management Companies are regulated by the Ministry of Justice and are not law firms made up of solicitors and barristers. In these cases, they can only complain to the FOS. They cannot issue legal claims nor represent their clients at Court and may lack expertise in this area. You do not need a CMC to assist you and typically they will simply refer your case to a lawyer for a fee (from the lawyer). We do not accept referrals from CMCs.
Business rescue and Insolvency advice
We specialise in Litigation, Winding-up and Insolvency work and as a consequence we are able to add value by our legal services by guiding clients in these areas which are often ancillary to Business Interruption insurance litigation. We can and have helped clients successfully defend winding up petitions brought by their banks and we can challenge the appointments of LPA Receivers, Auctioneers and also advise as to how best businesses can be rescued and turned around and how debts can be written off or restructured.
If your business has already suffered terminal loss due to (either in full or part) a denial of a legitimate coverage claim by your insurer please still contact us. We can provide advice on obtaining an assignment of the right to bring legal proceedings against the insurer from the Administrator or the Trustee in Bankruptcy as appropriate and have experience in doing so.
Instructing our Litigation Lawyers
We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before selecting the appropriate course of action in order to reduce time and expense. Liability for costs is always an issue in litigation and based on our extensive litigation experience we provide our clients with as much strategic, practical as well as carefully considered legal advice in order to ensure minimum risk in respect of costs. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our lawyer’s negotiation skills are first class. If early settlement at advantageous terms is not possible, we are extremely experienced and capable at navigating our clients through the litigation process.
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