Hi. I'm Tim Speed, a partner in litigation team here at Shakespeare Martineau, and welcome to today's webinar on Business Interruption insurance.
Before we start on your screen, you'll see a Q and A icon. Please use this to ask any questions you have, and we'll respond to all of these directly after the session.
As you will be aware, it has been widely reported that covert 19 pandemic has caused unprecedented disruption to the UK and worldwide economy.
Some businesses have grown to a halt and many are working at well below capacity.
My colleague, Steven Skiba, you're going to give you an overview of business interruption claims and discuss how these fit in with the current pandemic.
Over the past three months, the insurance market has seen a huge surge in the number of business interruption claims being made seeking recompense for loss of profit and reduce business. Many of these businesses expect the support and payment from the insurance companies and this is just not happened earlier this year. The FCA warned insurers to act commonly in both assessing claims and in paying out claims where liability has been accepted.
It's been widely reported the number of insurers have taken the view that business interruption claims made on the basis of losses suffered due to the ... pandemic, on not in fact covered, but much will turn on the exact wording of the individual insurance policy, which varies considerably throughout the industry. In June this year, the FTA issued a claimant court seeking clarity over whether losses suffered shoots a pandemic will in fact be covered by some of the more common policies.
My colleague, Stephen Skibo, will look in more detail about this test case shortly.
However, firstly, I'll give you a very brief overview of the different types of business interruption insurance.
There are three main types of business interruption insurance. The first one is property damage. Business interruption insurance, which is also known as physical damage insurance.
Excuse me. This is the most common form of BI insurance, and often appears in commercial combined insurance policies to reclaim to succeed. There has to be physical loss or damage sustained to the property that is ensured. That has to have been caused by the insured event.
A typical event is a fire floods which is caused damage to a property, which has made an insured is enabled in one form or another to continue that business as they had done prior to the event occurring and that has resulted in loss has been suffered.
So, what is essential for this type of policy is for actual physical damage to the property to have occurred.
The second main type of BI insurance is called Contingent BI insurance. And this is often an add on to policies, and is off use where businesses are involved in supply chains. This insurance also requires physical damage, but this requires physical damage the property of a third party, such as a supply or customer, and for that to have caused the insured to suffer the loss.
And the third made meantime to BI insurance is what is called non property damage BI insurance. Now, as disparate as a name, this does not require to be physical damage to property, and it may, again, be a standalone policy, or it may be found, is not onto an existing insurance policy. That this type of insurance may cover the risk of business disruption to the outbreak of a disease, or the inability of employees to access their work, for example.
So, what is physical damage?
The question of whether physical damage has occurred may well be obvious. In the examples I've used earlier of a fire in a flood, in these cases, they will have been some physical alteration to the property. But what about ... 19, can it be argued that the pandemic has caused some sort of physical damage, much dependent upon the wording of the policy and the interpretation of this by the courts? But, it is difficult to see that the actual physical damage has been caused by coal 19.
Having said that, in the ... case, proceeding through the Court, arguing that the contamination of premises by cave in 19 amount to actual physical damage to that premises.
In terms of disease, what is disease?
Some BI policies refer to losses suffered that have been caused by disease, but does that cause ... 19? Again, the wording of the policies varies greatly. As you might expect, it is unlikely that policies will cover losses suffered due to any disease, and many policies provide an extensive list of diseases, Although it is pretty unlikely that the older policies are going to refer to covert 19 but it is necessary to check the word in very carefully.
Some policies were referred to interruption to business following a notifiable disease. And it's important to note that the UK government added covert 19 to the list of notifiable diseases on the fifth of March this year.
Some policies do not require that have been an instance of a notifiable disease or the actual business premises, and may provide that. No phone notifiable disease, has occurred within a radius of say five miles of the business premises. It's important for businesses with international reach, to note, because they may have been affected prior to the fifth of March this year. For example, those businesses importing goods from China, the wording the policy, is vital to check the extent of the coverage.
In terms of loss of access to business premises, some policies provide coverage, where there has been a loss of access due to restrictions imposed by a public authority, for example, It has yet to be seen how this, how this will be dealt with. The current government guidance is that we should work from home where possible, but who is to determine whether it is possible to work from home, what equipment should be provided, and how much money is insured supposed to spend to ensure that they were the employees can work from home. So you can see that scenario is likely to be strongly argued.
three final points I just wanted to highlight, the first one is causation. It is necessary for the show to show that the loss suffered by the business were caused by the disease, or caused by the restrictions imposed by the government, or caused by the physical damage to the property. You need to review the word of your policy, as we can all think of a business that has not suffered any physical damage but has been forced to close by the government. Whether it has a valid claim will depend upon the wording of its insurance policy.
We can also all thing for businesses that have chosen to restrict access to their premises in accordance with the government guidance, but which, strictly speaking, we're not forced to completely shut up shop. It is yet to be seen how these will be addressed.
So, this is likely to be an area that is strongly argue why the insured and the insurers will inevitably clash.
Moving onto mitigation and insured party always has a duty to mitigate these losses. And we can expect and shows to argue that businesses have not adequately mitigated the losses due to covert 19. In particular, you can expect to be asked about the failure to adapt your business. What steps were you were taken? What steps could have been taken? And what steps are being taken to work in the new abnormal?
As a final point, the limitation of liability, it is worth checking whether there is a limited liability in the policy. Many policies will limit the recoverable losses for a set period or were limited to a set amount.
So that's all I wanted to say about this very topical area. And now I will I will attempt to pass you to my colleague Stephen to talk to you about the current FCA case.
Thanks very much, let Tim. So I'm now going to tell you a bit about the bit more detail about the FCI test case. And then I'm going to finish off with some practical practical tips.
So why bring a test case in the first place? The FCI announced an intention to bring the test case in order to get this legal clarity about the meaning and effect of selected business interruption insurance policy would in the context of covert 19 claims.
And that's because, as Tim said, the SCA recognizes that the issues surrounding business interruption policies a complex, and have created lots of uncertainty for both the insured and the insurance.
So what this case is all about is resolving uncertainty and to ensure that the insured and the insurers are treated fairly.
Now, whether or not a policy provides cover for business interruption because of the pandemic is going to depend upon the number of factors.
The most critical of that is going to be the policy wording, So the test case is there to look at that policy wording.
As Tim said, different types of business interruption insurance and many business interruption insurance policies only have basic cover for business interruption, resulting from property damage, so there's actual physical damage to the property.
But it's the non physical damage business interruption pulse policies often bought an agile property damage policy that the test case is seeking clarity upon.
And it's precisely because of the range of wording and the different types of cover and the policy wording is so broad in the marketplace, that's very difficult to work out where the policy holders have covered as a consequence of the pandemic and therefore are ready for a payout.
So, it's hope that the test case, by seeking this legal guidance, in this way, will be a quicker and cheaper mechanism for insurance than if they, perhaps, took their own court action against insurers at this stage.
So, what has happened with the test case?
So the court claim, as Tim said, it's gotten, and what the court cases is there to do is to get a judgement about the meaning and effect of a representative sample of business interruption insurance Policy wording, six, covering a broad cross-section of policies.
Now this test case isn't there to cover all disputes, but only to resolve those, where there are key contractual uncertainties and, as Tim said, causation issues by establishing some clarity.
So as I've said on the slide, the proceedings started on the night of June and the case is already listed for a trial commencing on the 20th of July and indeed the insurers have already put their defenses in and the FCI is in the process of putting together replies to those defenses.
Now on the slide, I've given you the link to the FCA website. And that's a very useful link because that provides you with lots of information about the case about what the issues, all I've got to be determined and specifically the things the Court is being asked to make a decision to pull and the challenges to those issues.
And the FTA's gonna make public on that website.
All of the case documents in the case, and we updating its web page regularly so that you can put input. So, you can, there are action groups, policy holders can make comment, and that can all be provided in a confidential manner.
In addition, the actual trial, it's going to be live, streamed.
And decision is likely to be end of July early August, So what does this test case, what are the key issues this test cases actually seeking to address? Well, there are two specific issues. What are the key issues? Is coverage, because insurers believe that certain policies which provide cover in principle for business interruption losses may not actually cover losses results from the current pandemic.
So if the disease is not at the premises, it's not within a given radius, or because of government imposed locked down.
And as Tim has said, one of the key areas is also causation.
Because the insurance against dispute, whether it's a matter of law or in fact, does this causal link to any loss suffered by the insurance.
The key issue is whether the proximate cause of loss of the restrictions caused by Coburn 19.
or, for example, the UK government's response to it because if it's the latter, than the effects of the pandemic, may not actually form part of the insured peril, and that position will be determined on the precise wording of the policies being analyzed in the test case.
So, for example, one current policy, under analysis insures against losses caused by restrictions imposed by a public authority during the period of insurance.
Now, in that case, what is a public authority?
It could mean a non governmental authority, a local authority, but may not include actions taken by the government, itself.
So, closing a business based on government guidance may not trigger recovery.
So, what's the court actually being asked to consider Prefix.
First, as I've said before, policy wording. So, what the SCA did prior to the case was worked with the insurers and selected a samples of policy wording to be used in the in the case.
It selected wording, but it consented represented all the most frequently used policy wording that gives rise to uncertainty.
This then assumed facts. So, these were a set of factual assumptions designed to help the Court.
These haven't been tailored to specific policies, but what they do is they represent an overview of what the FCA perceives to be a range of possible scenarios, factual scenarios for the insured's to consider across different industries.
So, in essence, what the case is going to delve into is whether the policies can be considered within the framework of these assumed facts.
Now, an example of some examples of assume facts will be things like the type of business, wasn't a part of the theater. Where's it located in urban or rural?
Was there an instance of covert 19 on the premises, what the local fire fuel please do by way of issuing guidance to take action? So, these are the types of assumptions that are going to be analyzed.
And finally, there's a whole raft of questions. There are currently 21 questions to be put before the court arising from the insurer's reasons for denying claims.
Now, that's not to say the court is going to be asked not to consider further policy wording. So other policies might be added in.
There may be additional assumed facts. I suspect there will certainly be further questions put forward for determination.
But what is important is you cannot assume that the inclusion of a policy of wording in the test case will mean that an insured is able to claim for pandemic related business interruption under their policies.
Because the court may decide that a number of selective policy wording covers the current pandemic, but at the same time conclude others do not.
And, of course, this test case does not prevent you from pursuing issues now, through settlement negotiation with your insurer or making a complaint to the financial Ombudsman service.
The SCA wants to ensure that ensure to properly engage strap the test process, the idea is that we will consult the key stages.
Any information in short shared with the FCA will be treated confidentially and covered by litigation privilege, what will be the impact of the test kits?
Whatever the judgement handed down in the test case is, it's going to be legally binding on those insurers that are parties to the case in respect to the interpretation of the business interruption policy wording.
In addition, it's going to prove it can be of persuasive guidance for the interpretation of identical or similar policy wordings and claims that ought to be taken into account.
Now, obviously, if there's a risk that at first at the first go, the case might not be finalized because it may end up going to the Court of Appeal or indeed further up to the Supreme Court.
Now the FCI is keen to avoid delay and it may well be that there's no final decision it goes straight to the Supreme Court for a quick decision.
The FDA has also introduced new guidance to ensures setting out its expectations that following any judgement, including the outcome of any appeals. Insurers must apply the judgement when assessing new claims.
But importantly, they must also look back and re-assess all their outstanding or rejected claims and complaints that may be affected by the case. That's an overview about the the FCA case and where it's actually at this moment in time, so I want to just think about some practical points.
So what practical steps do you need to take?
What can I do to ensure that my business interruption insurance claim is accepted, and payment is received quickly?
Well, on the assumption that the claim satisfies the policy wording, and you can show that the occurrence was the cause for the loss, then what is absolutely key is you check what the policy savings about the documents required to support the cut.
What you also then need to do is to get all the documents you require together.
And what is very important, is it all of the regional documents that preserved.
Now, those documents will inferred include details about the lost revenue, predictions on what that revenue would have been, but for the loss, a breakdown of your expenses that have been incurred will also be required.
And in order to gather that information, use your broker, use your accountant, because they'll be particularly helpful in putting together the financial information for you.
And there should also be ongoing collation of documentation information.
It's very important you maintain detailed record keeping, setting up what losses and loss opportunities you've suffered from the outset. and throughout the process.
You shouldn't wait until the time you're going to make a claim to your insurer.
Before you start to put this together, you need to build the picture now of the impact the pandemic is having on your residue, your expenses, and your ability to run the business.
It's going to be much easier to keep a running log in details of those losses that trying to work it all out at the end.
Check that all the document type you are relying upon is actually directly relevant to the occurrence, and it's got to be sufficient to show the pandemic that caused the loss.
There's no good throwing in lots of irrelevant miscellaneous documentation or to try and bamboozle your insurer. It won't work.
You've got to be precise.
Insurance will want to see evidence to support the requirement to indemnify.
And it's very important that you precisely follow the mechanism for making clayton's as set out in the policy world.
Now, there may actually be standard forms or questionnaire to fill in, or you may be required to find the information a particular format.
So in order to ensure the smooth running, if you claim, it's very important you do precisely what the policy wording says you must do, sir.
What happens if you've made your claim and your insurer rejects that claim? Well, I have a number of recommendations I'd make to you.
The first is to take some legal advice for another few on the policy wording. We can take a look at the contractor wording for you and we can provide you with an overview.
Secondly, you may actually now want to wait until the outcome of the FCA test case before deciding to take any further steps.
As I said earlier, the present timetable is for a decision late July, early August, subject to any appeals, so you wouldn't have to wait too long.
Thirdly, you should consider whether you want to make a complaint to the Financial Ombudsman service and seek redress there to seek compensation. And we can help you with submitting your claim to the FMS.
It's also important to think about whether the policy was right for you in the first place.
Whether it met your demands and needs when you acquired it Because it could be the case in certain circumstances that the person who helped you acquire the policy failed in their duty.
So if you used a broker and that broker didn't get it right for you, then they might have been negligent and you might have an option of bringing a claim against the broker.
It's a very specialist area and you'll need to take some expert advice, but again, we can help you with that.
You could also consider challenging your inshore so you can engage with us to enter into correspondence with the insurer in order to try and work out why the insurer has got it wrong.
In the worst-case scenario, you might construct help with bring a case against the showroom although we can look at alternative forms of resolution through negotiation or indeed, mediation.
Now to assist you with all that, we've developed a fixed fee product.
And what we'll do within that project is we'll undertake a review of the policy wording, and we'll give you an opinion on its enforceability and some guidance on next steps.
That brings us to the end of this webinar.
I hope you found it useful and relevant in the current circumstances.
if there was something you would like further information on or have a specific query match, if you would like discuss them, please do let us know and we'll be happy to help.
Thank you for joining.