Insurers and brokers tell claimants every day that their claim is not covered by their insurance policy – you should never take that rejection of your claim at face value.
Take some simple steps, starting with a careful check of your policy wording, line by line and word by word – often that wording is ambiguous, and because the insurer is the one relying on that wording, that ambiguity works in your favour as the claimant.
I have been told regularly for more than 36 years that my clients were not covered by their insurance – in one case, by broker, insurer and the insurer’s lawyers; that case was settled before trial for £900,000 plus costs.
1. Check your insurance policy schedule.
If you do not have a copy to hand, get a copy from your broker or insurer. Don’t rely on what you are told about the extent of cover – information from intermediaries and insurers can sometimes be misleading.
Is business interruption listed in the schedule as an area where cover is included? Business interruption cover is designed to protect businesses against the financial loss suffered as the result of an inability to trade, often because of property damage or other factors (storms, theft, vandalism etc). It exists to cover the income a business would have received if the incident had not occurred.
For businesses affected by severe adverse events, this type of cover can mean the difference between survival and permanent closure.
It is often included as an add-on to a commercial policy, so you may not realise that you have it, so it is all the more important to check the schedule for the full coverage of the policy.
2. If the schedule confirms that you have cover, get the detailed policy terms to understand its extent.
Words to look for are likely to include a ‘material damage proviso’ which would mean that, in order for the business interruption cover to be effective, there would need to have been some physical damage to your premises or other tangible property or assets.
But do check the detailed policy wording – some policies will include ‘special extensions’ which include losses caused by notifiable human diseases. Some policies with these extensions may cover you for interruption caused by Covid-19, others restrict cover to certain specified diseases.
3. Make a claim and establish that your insurer accepts liability as quickly as possible.
Any delay in liability acceptance for a commercial loss may have severe consequences – cash flow may be impacted for several months.
As in other areas in the past (severe storms, drought, floods) where multiple simultaneous claims are anticipated from nationwide events, insurers will adopt a hard-line attitude, and look to avoid as many claims as possible.
Whatever limitations and exclusions the insurer relies on to reject liability should be very carefully examined – is the clause relied upon inconsistent with other parts of the policy? Are there other clauses, not cited by the insurer, which would potentially provide cover? Is the clause ambiguous? In these cases, the law will favour you, rather than the insurer.
4. If your insurer accepts liability, you should quantify your claims and collate evidence to support them so that you can pursue them swiftly.
The business interruption insurance indemnity period (the period during which lost revenue is covered under the terms of the policy) will dictate the extent of the recoverable loss.
The ‘maximum indemnity period’ is usually 12, 24 or 36 months from the date of the claimed ‘incident’. The claim should include both tangible and intangible losses, and should be based on business forecasts and not the previous years’ earnings, taking into account all factors such as seasonal variations and planned expansion.
Bear in mind that you are obliged to minimise loss, so you will need to be able to show that you have done all you can to restrict losses.
5. If your insurer refuses liability, consider how you can persuade them to change their position.
Your first step may be to use the policy appeals and/or the insurer’s formal complaint process. There will be pros and cons associated with each alternative, so these need to be assessed carefully.
6. The next step might be a report to the Insurance Ombudsman, now part of the Financial Ombudsman Service (FOS).
FOS can help micro-enterprises and small businesses (including self-employed people, partnerships and limited companies). This process avoids the cost of the court process.
A micro-enterprise is a business which has a turnover or annual balance sheet that does not exceed £2m, or employs fewer than 10 employees.
A small business is an enterprise which:
- is not a micro-enterprise
- has an annual turnover of less than £6.5m or
- has a balance sheet total of less than £5m, or
- employs fewer than 50 employees.
FOS can also help charities with an annual income of less than £6.5m and trusts with a net asset value of less than £5m, as well as individuals who act as personal guarantors for loans to businesses they are involved in.
You must have pursued the insurer’s complaints procedure to a conclusion before seeking assistance from FOS.
7. These processes involve delay and time is crucial – consider a formal letter of claim to the insurer as a pre-cursor to court proceedings.
This maintains the urgency of the claim – that letter will need to be compliant with the relevant protocols issued pursuant to the Civil Procedure Rules. But bear in mind that FOS will not investigate once court proceedings are threatened or initiated, so that cheaper option may be lost. You will want to think carefully about your options at this stage.
8. If you discover that you do not have any relevant cover, consider whether that is due to a broker or other intermediary providing inadequate advice.
A range of factors affect whether or not a business should elect for business interruption cover, but an adviser should consider whether or not substantial damage inflicted on the business’ property or physical assets, or other events such as a pandemic, would significantly affect its ability to trade for any sustained period of time.
A sole trader who needs only a laptop and an internet connection to work would have little difficulty making arrangements to enable him/her to continue to operate. However, a large manufacturing business holding significant stock would be very vulnerable in such circumstances, and an adviser should have assessed the risks and the events which posed a significant threat to the business. When choosing the indemnity period, did the adviser properly consider the period of time it would realistically take for your business to be able to trade again?
9. If you decide to pursue a claim against an adviser, you should consider whether your cover includes Legal Expenses Insurance (LEI).
LEI takes away the cost of the process as a reason not to pursue the claim. Many policies require you to use the insurer’s panel lawyers. But some allow you to use your own lawyer to pursue the matter on your behalf, either from the start or later in the process when you need to initiate court proceedings; that lawyer must accept the insurer’s terms of engagement.
10. If you have been exposed to risk with no adequate insurance cover, is this the responsibility of one of your own senior staff?
If so, look to your Directors & Officers cover. While these policies will cover both the company and its employees, many do not have an ‘insured on insured’ claims prohibition, so that the company can recover losses caused by its own employee even though that employee is also insured under the same policy.