Insurance inconsistency uncovered: ‘Business Interruption’ policies not paying out after Covid-19 shutdown
Monday 11th May 2020
UK insurers are set to face legal action from small businesses after their 'Business Interruption' claims as a result of Covid-19 were turned down.
It would arguably not be an overstatement to say that nearly every industry has been impacted by the Covid-19 pandemic. Many businesses have subsequently been forced to claim from their insurances. However, some of Britain's biggest insurance companies, such as Hiscox, are not paying out. This is despite having sold policies prior to the Covid-19 crisis reportedly saying they would ‘pay out when a business was forced to shut owing to a notifiable disease’.
Media Zoo, which consists of film, PR and online learning businesses, employs over 130 staff. They are said to have lost hundreds of thousands of pounds after shutting their offices due to the pandemic. The company spent over £13,000 for its insurance, which it took out before the full unfolding of the crisis. Their cover included 'Business Interruption' for income up to £5.3 million. Media Zoo were advised by their insurance broker they would be covered if the pandemic forced their offices to shut. This can be appreciated through their policy cover, allegedly covering ‘an occurrence of a human infection or human contagion disease, and [the] outbreak of which must be notified to the local authority’ resulting in ‘the inability to use the insured premises due to restrictions imposed by a public authority’.
Nevertheless, Hiscox have rejected the claim. They stressed that the policy was only designed to cover businesses forced to shut due to a contagious disease or other incident found at the premises or within a one-mile radius. The fact that the government directed the closing of the offices means the policy is not applicable. The government's actions were part of a set of measures aimed at preventing the spread of Covid-19 in the UK. It is therefore not an outbreak at the premises of the business, or the surrounding area, with the policyholder not having to notify the local authority of such an outbreak either.
Over 100 pubs, nightclubs and bars are proposing coordinated action against Hiscox for their failure to pay out for 'Business Interruption' insurance claims. These policies are reported to pay up to £100,000 and would cover the cost of keeping a company going if it is forced to close for reasons out of its control. In the past, this has included fire, flood or events that prevented the site from opening, such as a murder. Yet, insurers have said the pandemic is an extraordinary situation – one the insurance policies are not designed to cover.
Roger Topping, who runs TopMark Adjusters (a firm focusing on loss adjusters) is behind the legal challenge against insurers. He described it to not just be an issue with Hiscox but also several other insurance companies such as Eaton Gate. He highlighted that the extensive losses involved have led the insurance industry to search for reasons not to pay. This is in contrast to situations such as floods or terrorism that have government-backed insurance schemes. It seems that for a private insurer to cover the cost of the impact of the coronavirus is not only too great an obligation, but also systematically not possible.
Many are calling for insurers and the government to agree on a solution. This is before legal action is taken and large sums of money are spent on legal fees. The Association of British Insurers, whilst declining to comment on the current situation regarding claims from businesses to insurers, have otherwise warned businesses against cancelling their 'Business Interruption' policies. This is because they highlighted the importance of businesses continuing to be covered for standard risks. For example, with premises being unoccupied, situations such as theft or vandalism may occur.
During these uncertain times, one thing that is certain is that the coronavirus is a crisis like no other and creating uncharted territory. Businesses are not only concerned and struggling as a result of the pandemic, but also from the apparent lack of cover for what have been described by many as legitimate 'Business Interruption' claims.
However, insurance companies are also fighting their own battles. Their policies were arguably only designed for individual or localised claims, not for a crisis on a national or global scale. It could be said that the events currently taking place are similar to war or a nuclear event (with radioactive consequences), which insurance policies would to an extent not be seen to cover. Hiscox have, however, affirmed they are settling claims resulting from the coronavirus. This has so far included cancelled or abandoned events for a variety of industries such as entertainment, media and even travel. It is reported that Hiscox will expect to pay over £120 million to settle claims if restrictions on mass gatherings and travel continue for six months. What happens in the meantime though, and whether insurers will, in the end, have to pay out to smaller businesses is yet to be seen in arguably one of the most unique and unpredictable global climates outside wartime.
