In a landmark legal case in January, the Supreme Court ruled that many insurance companies have to pay out business interruption insurance to policyholders affected by the Covid-19 pandemic. It has been estimated by the Financial Conduct Authority (FCA) that some 370,000 firms could be affected, with payments totalling approximately £1.2 billion1. The test case was brought by the FCA, and centres on certain disease and prevention of access clauses in business interruption policies.
But who exactly is affected, and what should you do if you think your business insurance policy is one that has the relevant clauses? “If your policy wording mentions cover for notifiable human disease within a set radius (and without a specified list of diseases), or denial of access/inability to use your premises due to restrictions/mandatory closure as a result of notifiable human disease (again without a specified list of diseases) then you might be able to submit a claim,” explains Peter Blanc, Group CEO of insurance broker Aston Lark. “In the first instance, you should contact your broker, who will check your specific wording. If you do happen to have one of the small number of applicable policies then your broker should help you to submit the claim accordingly.”
Daniel Duckett, owner of Lazy Claire Patisserie in Northern Ireland, one of many small businesses affected by the pandemic, echoes this advice. “I would advise businesses who believe they have appropriate cover to scrutinise their wording (if it wasn’t covered in the FCA test case, which couldn’t address every single wording available) and to partner with their broker closely to determine whether cover exists. If it does, they should continue to fight for indemnity and advance complaints to the Financial Ombudsman Service if necessary.”
However, Peter sounds a note of caution: “Beware though: you’ll still need to prove your loss. If you’re as profitable now as you were before the pandemic, there’ll be no claim payment.”
Daniel’s insurer declined his business interruption claim, as a result of which he, along with two other owners of small businesses, Mark Killick from Media Zoo and Simon Ager from the Pinnacle Climbing Centre, formed an action group of companies who had been denied a business interruption payout.
“Our members range from cafes, hair salons and aestheticians to recruitment companies, and there doesn’t seem to be any sector that isn’t represented,” says Daniel. “Nearly every single business was depending on this cover to continue to survive. Many were in dire straits and desperately needed some form of payout.” The group’s legal team at Mishcon guided them through the process, and by compiling information the group itself also became an important source for other affected businesses.
The Supreme Court ruling means that many of these businesses should now receive a payout. Lazy Claire’s policy wording was one of the categories covered specifically by the legislation, meaning its claim should easily be advanced. “The Supreme Court ruling is in principle great, and does provide clarity,” notes Daniel. However, he points out that others have not been so lucky, and that, thus far, his company has not received an interim payment or final settlement offer.
Planning for the future
Although it is impossible to plan for every eventuality, Covid-19 has highlighted for many the importance of getting a strong, comprehensive insurance policy suited to their needs.
“I still see the value in insurance and understand that not every single situation may be covered by a policy,” says Daniel. “This has formed my view that all stakeholders in the insurance industry – policyholders, insurers, the Association of British Insurers and the FCA – must begin strong dialogue to ensure expectations are being met and that policies are written in such a way that it is clear what is covered and excluded.”
“Using a good broker who helps businesses to understand their risks, mitigate them and then transfer the remainder to insurers is always the best advice,” says Peter. “Comprehensive coverage might be the right answer for you, but equally a carefully crafted self-insurance programme could work and prove to be more financially viable. Make sure that your broker is a true risk advice partner to your business and work with them to protect your world.”
But he highlights in particular “early engagement” as being of paramount importance. “The insurance market has been hit by an array of challenges in recent years – Solvency II, Covid, storms/floods – and capacity has reduced dramatically, resulting in a very ‘hard’ insurance market. It is vital that your broker engages early in the market on your behalf to avoid any unpleasant shocks.”
If you’d like to find out more about business insurance, talk to your St. James’s Place partner