On 23rd March 2020 the UK went into lockdown, with businesses across the country having to close their doors. The Government has been reluctant to release plans on how and when the sanctions may be eased, leaving many small businesses fighting for survival during the pandemic.
Business owners have been turning to their business interruption insurance policies for cover in these uncertain times. However, after paying thousands in insurance premiums over the years, many are being told that their insurance policies do not provide cover for pandemics.
Normally, business interruption insurance provides cover when a business has been interrupted as a result of an event specified within the policy, such as a flood or fire.
The Financial Conduct Authority (FCA), who regulate insurers, and the Association of Business Insurers have both stated that most basic policies are unlikely to cover Pandemics. However, I have been advising small business owners on this issue and advise that before accepting a rejection, that businesses check the wording of their policies with a fine-tooth comb. Cover might be provided under another clause, such as denial of access or a closure caused by Government advice. The insurers will be looking at any way possible to deny a claim, so companies should check their policies line by line to see if they have a valid claim.
Insurance companies will inevitably seek to fight these claims wherever possible. Their potential liabilities are huge and paying out en masse will have a significant financial impact upon them. However, the FCA, has already made it clear that insurers should halt dividend payments to their own shareholders, in order to ensure they have sufficient funds available to make payments on valid claims. This is a clear signal that the FCA expects the insurers to act fairly when dealing with cases.
If the insurers do fail to honour policies, then they could face mass litigation from groups of affected businesses.
I have reviewed a number of different policies in relation to business interruption insurance and, on the face of it, they appear to provide cover. For example, one policy states that cover is provided for any human infectious or human contagious disease which has manifested at the premises or within 25 miles of it. The insurer has rejected the claim on the basis that unless there has been a case of COVID-19 at the premises or nearby, resulting the in the closure, as opposed to the Government advice to close, cover will not be provided. However, in my view there is a potential argument to be had in relation to this wording.
Unless the Government steps in to offer their support on this matter, small businesses are likely to face delays to their claims and potentially expensive litigation. This at a time when businesses are already struggling to survive. This will sound daunting for any small business owner. However, don’t let this deter you. Register your claim as soon as possible, any delay could lead to a rejection on this basis alone. If you are a micro or small business, you can make a complaint to the Financial Ombudsman, which is likely to be quicker and cheaper than litigation. You will need to have exhausted any internal complaints procedure before you can complain to the FOS.
By Laura Pearce, Solicitor at JFH Law