A guide to business interruption insurance
If your business has been forced to close due to the pandemic and you hold Business Interruption insurance, you may be eligible for compensation. Jonathan Cole, commercial litigation solicitor at law firm Goodman Derrick, explains the practicalities.
The government-enforced measures introduced as a consequence of the Covid-19 pandemic have caused huge disruption to the travel industry, with no indication as to when this disruption will end.
It is therefore no surprise that business interruption (BI) insurance has become a topic of critical importance for so many UK travel agents who are suffering as a consequence of the events of the year.
Here’s everything you need to know about BI insurance.
What is BI insurance?
BI insurance may cover loss of profits and other expenses that a business suffers as a result of certain events. This usually includes physical damage to a store or other business property caused by fire or flood but, crucially for travel agents in light of current events, some policies allow the insured to claim for losses caused by non-physical events, such as if a store is forced to close as a result of a disease.
How do I know if my business is covered?
Insurance policies for the travel industry tend to be long and confusing documents which are difficult to understand. You may think that you are not covered for BI insurance when, in fact, coverage may be hidden in a different clause or section of the policy.
There are a variety of relevant BI clauses written in a number of different ways but the majority fall into two broad groups:
(1) “disease clauses” which state that an insurer should pay out if the business or a number of its stores are closed or unable to function due to certain infections
(2) “denial of access” clauses which state that insurers should pay out if something is preventing a business or its customers from accessing a particular store.
How do I make a claim?
If you think that your business may have BI insurance and you have suffered a loss, you must contact your insurer without delay to notify them of the claim. Most insurance policies require the insured to notify their insurer promptly of any claim and a failure to do so may result in the insurer refusing to pay out.
It is likely that you have purchased your policy through a specialist industry broker, in which case you should contact them to discuss whether or not you have a claim and how you should notify your insurer.
If you have a BI policy that responds to the losses you have suffered, then you will want to ensure that you are compensated for as much as you are entitled to claim under the policy.
A key feature of this will be calculating and providing evidence in support of your financial loss. This may well require a detailed accounting exercise by reference to historic financial trends but you should not let this delay you from notifying your insurer of the claim.
What should I do if my insurer rejects the claim?
The current events have the insurance industry reeling and many insurers are either delaying or refusing to pay compensation. This has caused the Financial Conduct Authority to take action, bringing a test case against eight insurers in relation to 21 sample policy wordings.
The case has been expedited through the courts and was recently heard in the High Court, where many of the policies have been interpreted in such a way that a large number of businesses who hold BI policies may now be entitled to compensation.
This is a very important development, which could impact up to £1.6 billion worth of policies and is likely to provide helpful guidance on the interpretation of similar policy wordings adopted by other insurers, who are not a party to the proceedings.
Consequently, you may have been refused a claim by your insurer five months ago but your policy wording may now be subject to review by the courts and the position may have changed. Speak to your broker on a regular basis to see if there have been any material changes.
Is there any other way of recovering the losses?
A rejection from your insurer may not be the end of the process. Your case could be arguable either way and there may be merit in pursuing a complaint to the Financial Ombudsman Service.
You may also want to consider a possible claim against your broker, if they were engaged to secure a responsive BI insurance policy for you but failed to do so.
There are likely to be a substantial number of legal disputes arising from the fallout over BI insurance. The FCA case is subject to an appeal and there are other group actions being pursued. Keep an eye on the developments in the news, as it is difficult to predict what the future holds and how this might impact on your BI policy.
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