These measures include an order for non-essential retailers to close their doors, and for employees to work from home where possible. The result of these measures is a significant slowdown or interruption in business, with many companies facing significant financial losses. While these businesses may have been hoping to rely upon their commercial insurance policy to cover a proportion of these losses, a significant number of insurance providers have been rejecting business interruption claims caused by the Covid-19 pandemic.
Business interruption cover is sometimes included as standard in commercial insurance policies, but is more often than not offered as an optional add-on. Business interruption is designed to cover a company for loss of income where business cannot continue as normal as the result of a specified event.
The wording used in such policies varies extensively between insurance providers, so it is important to review the terms of the policy carefully as the availability of cover is dependent upon this wording.
The interim chief executive of the Financial Conduct Authority, Christopher Woolard, has written an open letter to insurance company CEOs advising that “there are policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.”
However, despite this recommendation, the FCA did acknowledge that the majority of business interruption insurance provisions would not cover losses as a result of a pandemic.
A number of major insurance companies have confirmed their stance on business interruption cover. Allianz and Aviva have stated that their policies do not cover diseases that are not named in the policy, and Zurich has said that their policies do not generally provide for global pandemics such as Covid-19.
Hiscox, the FTSE 250 insurer, has been accused of refusing what some policy holders consider to be legitimate claims and has faced threats of legal action as a result. Based on its policy wording, Hiscox’s business interruption cover states that it covers business interruption losses arising from “….your inability to use the insured premises due to restrictions imposed by a public authority during the period of insurance following an occurrence of any human infectious or human contagious disease, an outbreak of which must be notified to the local authority.” It is not known how many policies Hiscox have issued with this wording.
Without the financial support of insurance cover, businesses may face a real risk of insolvency. Hiscox has argued that business interruption insurance was “not designed to cover the extraordinary circumstances caused by this pandemic, [which was] simply too large and too systemic for private insurers to cover.”
However, insurers obligations to those companies with business interruption cover will be determined by the wording of the specific policy provision. It is therefore vital that businesses review the terms of their insurance policy carefully, in order to determine whether or not they can contest a refusal to pay a claim.
For further help or advice, please contact Partner Simon Lockley from our Dispute Resolution team who can be contacted on 0114 228 3297 or firstname.lastname@example.org.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.