You may have received an initial rejection of any business interruption claim from your insurer or you may have decided not to pursue a claim given the challenges. However, the situation may not be as bleak as it initially appeared.
Your insurance policy is a contract and is open to interpretation
Your policy and accompanying schedule form a contract between the insurer and your business. Policy wordings vary between insurers and so no blanket approach can be adopted.
Each policy needs to be considered and analysed on the basis of its own terms. It is also important to bear in mind that the terms have not yet been considered by the courts in the context of a pandemic. Therefore, if your insurer is refusing to cover, it is based upon its own interpretation of the policy wording rather than any legal decision.
What should you do?
It is important to carry out a thorough review of your policy. In particular, review the general business interruption clause, and consider any extensions that you have paid for, such as:
- Denial of Access
- Specified Illness / Notifiable Disease
- Loss of Attraction / Event Cancellation
- Supplier / Customer Interruption
We have seen policies where Covid-19 is included within the definition of ‘Notifiable Disease’ but the insurer is still refusing the claim. Therefore, it is important to carry out your own analysis – consider the natural and ordinary meaning of the relevant clauses. The courts will apply a degree of commercial common sense, although this will not be invoked retrospectively.
In the context of insurance contracts, the courts can look to the purpose behind the policy, and if there’s ambiguity in the clause, the ambiguity should be resolved against the insurer.
It is also important to notify your insurer or your broker of your claim as soon as possible. Typically, you only have 30 days to notify on become aware of an incidence, which may give rise to a claim.
What steps is the Financial Conduct Authority (FCA) taking?
The FCA has issued a claim seeking declarations from the court regarding some of the key and pertinent issues, such as:
- Does ‘notifiable disease’ or ‘human infectious disease’ include Covid-19?
- What does the policyholder have to prove in order to establish ‘denial of access’?
- If the disease is required to be in the ‘vicinity’ of the insured premises, what does this mean?
The case is due to start on 20 July 2020 and last for 8 days, so a decision is likely in early August. In light of the court case, insurers and brokers are to consider how coverage decisions may be affected by the final resolution of the test case. There is an obligation to identify policyholders who may be affected by the test case and to communicate with them, particularly regarding whether the policyholder is likely to be impacted by the outcome.
In other words, watch this space.