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Business interruption insurance | our fixed fee support
COVID-19 continues to be a disruptive force across all sectors, with many companies unable to continue with business as usual.
When COVID-19 first impacted, companies turned to their business interruption insurance to claim back the money they had lost and they continue to do so. Companies were then faced with arguments from insurers refusing to provide cover.
Business interruption insurance - do insurers have to pay out for COVID-19-related losses?
To get clarity on whether insurers have to pay out to companies under business interruption policies for COVID-19-related losses, the Financial Conduct Authority (FCA) brought a test case.
The outcome of the FCA test case in the High Court provided a degree of clarity to both businesses and insurers, especially in terms of interpretation. However, the arguments continued as both the FCA and six of the insurers had been allowed to appeal aspects of the original High Court judgment, the decision on the appeal (which was heard by the Supreme Court) was made on 15 January 2021 and has found in favour of policy holders. The decision to dismiss the insurers’ appeals was unanimous.
The decision is good news for policyholders. It is more likely now that insurers will be required to pay out on policies identical to and similar to those tested by the FCA’s case.
The art of interpretation
The aim of the original FCA High Court test case was to provide businesses and insurers with a degree of certainty on how the wording of policies should be interpreted. The Supreme Court’s decision provided more certainty. In some aspects, the Supreme Court went much further than the High Court which strengthens the argument for policyholders.
Potentially worth billions of pounds, the case involved the examination of 17 policy wordings from eight insurers to assess whether COVID-19 generates a pay-out. The Supreme Court’s decision had claims rejected to re-visit their policies and for others who did not claim at the time to have a look at their policies with a view to making a claim. This decision will also have an impact beyond business interruption insurance and into other areas of insurance. This is because one element of the case was about causation; namely what was the cause of the business interruption?
Challenges to overcome
There are a number of issues that come into play regarding business interruption claims, including:
• The intended nature of business interruption policies - many business interruption insurance policies only have basic cover for business interruption resulting from property damage (so actual physical damage to the property). Other business interruption policies (often bought as an add on to a property damage policy) cover business interruption for other causes – for example relating to infectious or notifiable diseases or denial of access or where public authorities enforce closures or impose restrictions. This denial of access (and what caused it) often conflicts with the policyholder’s view, who may feel that they should receive a pay-out regardless of what triggered the business interruption.
• Geographical coverage – Some insurance policies include geographical coverage clauses, which cover businesses if there is a “notifiable disease” on the premises in the surrounding area. With COVID-19, it may be difficult to prove that it was present in a certain location (the outcome of the test case has helped here for certain policy wordings). Subject to the wording of the policy, the Supreme Court decision will now assist.
• Demonstrating a causal link – COVID-19 will have to be directly linked to the losses incurred for businesses to be covered. This could have been a challenge, as the losses may be due to the Government-mandated closures, rather than the virus itself but the Supreme Court’s decision has provided the clarity needed here too.
Making a claim on your business interruption insurance policy
The three national lockdowns imposed as a consequence of the COVID-19 pandemic inevitably mean businesses which cannot or could not operate (or whose operations are restricted) should consider whether their losses are recoverable under any business interruption insurance policy they hold. It is the case though that after the first national lockdown some insurers re-wrote their policies to tighten up on the extent of any indemnity cover and to put themselves in a stronger position to refuse cover when entering into new policies.
As a result of the Supreme Court decision, insurers with policy wording identical to or similar to those tested should now settle all valid claims as soon as possible and it is understood that, in many cases, the process of settling claims has already begun. However, regardless of the outcome, it is important to remember that claims will turn on their particular facts and, most importantly, the wording of the policy.
How we can help with our fixed fee support
It may be that you are thinking of making a claim under a business interruption insurance policy or that you have already made that claim and it has been rejected.
Making a successful claim
It’s vital that if you are thinking of making a claim to your insurer that you have an understanding of whether the policy wording will cover you and a plan to challenge any arguments that an insurer may advance to try to invalidate any claim.
If you do have grounds for a business interruption claim, you must gather the right supporting evidence, including collating original documents that show the lost revenues, as well as the forecasted revenues and any expenses incurred. Instead of treating this as a one-off process, you should keep an ongoing record of the relevant information, just in case you decide to make a claim at a later date.
How we can support you
We will carry out a review of your policy wording and provide you with an opinion on validity (whether we think the policy wording covers you or not). We will also identify potential obstacles to any successful claim resulting from our review of the policy wording. We shall do so applying the decision of the court (following the outcome of the Appeal).
Already made a claim and rejected?
A rejected claim doesn’t mean you have to give up. We will carry out a review of your policy wording, consider the reasoning from the insurer for the rejection of the claim and provide you with an opinion on validity. We will assess this against the findings in the Supreme Court decision, if relevant.
If we consider the insurer has got it wrong, we will summarise your options available, such as:
- Complaining directly to the insurer if you believe the wrong decision was made.
- Making a compensation claim against the insurance company for breach of contract.
- Making a complaint to the Financial Ombudsman Service to seek compensation.
- Assessing whether you are entitled to compensation from the broker if you believe the advice given wasn’t correct.
If you have yet to make a claim our fixed fee review is
£450 + VAT per policy
If you have made a claim which has been rejected or had cover refused, our fixed fee review is
£550 + VAT per policy
What are my next steps?
Often, the time and financial costs involved in litigating against a large insurance firm puts businesses off taking a stand. However, with the right legal advice, organisations can find viable funding options that allow them to take the next step towards a fair result.
By following the conclusions of the Supreme Court decision and any guidance created from the case, businesses can increase their chances of making a successful business interruption claim, lessening the long-term financial impact of the pandemic.
Whether you’re considering making a claim on your business interruption insurance, or have had a claim rejected, our commercial disputes team can advise you on your options and guide you through the process of what to do next.
Our guide to recovery and resilience helps to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.
From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.
Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.
Contact us today to find out more about our fixed fee support
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His Orthopaedic expert commented on the possibility of the foot being amputated which had all sorts of implications for our insurer client, including the possibility of future loss of earnings, future care, future orthotics, future surgery and future accommodation claims. On the basis of the claimant’s orthopaedic evidence, the claim was worth in excess of £500,000.
Through an extensive review of the claimant’s medical and DWP records, a long and complex medical history was uncovered that referenced kidney complaints, liver issues and heart failure.
At the Cost and Case Management Hearing, these issues were highlighted to the judge and the court was persuaded that a general surgeon was required to comment on the position and provide the court with an opinion on potential future losses and life expectancy, in light of the medical history.
A general surgeon was instructed as a single joint expert and commented that it was highly likely the claimant would have had to give up work within six months of the accident, in any event.
In the end, the claim was settled for the gross sum of £10,000, which represented a fantastic result for our insurer client. The claim demonstrates that whilst it may be a very time-consuming task; an early, full and detailed review of the medical and DWP records is invaluable when issues of medical causation arise. This allows the defendant the opportunity to request permission for the appropriate medical experts to comment on medical causation, at the outset of proceedings.
Commenting on the outcome, Nigel Lewers of 12 KBW commented “Ravinder and the team at Shakespeare Martineau did an excellent forensic job in reducing a substantial and medically complicated claim to one which ended up being very modest.”