Has your business been forced to close due to Covid-19? Did your insurer reject your business interruption insurance claim?
The Covid-19 pandemic and restrictions imposed by the Government during the lockdowns have led to thousands of businesses facing financial difficulties and making claims under business interruption insurance policies for losses resulting from business closures. However, many businesses have suffered a rejection of such claims by their insurers. This led to a number of high-profile disputes between businesses and insurance companies, with the worry being that some small firms would become insolvent and not survive the pandemic without such insurance pay-outs. The result was a fast-tracked High Court hearing.
In this article, Marc Evans an insolvency manager based at out London office, notes that although the High Court’s judgement was largely in favour of policy holders, the recommendation is that all companies wishing to claim, especially those in the hospitality industry, check their own policy’s wording to see if they are covered by the Court’s judgement. He also points out that when a company is facing an insolvency procedure as a result of delays in receiving a pay-out, Antony Batty & Company, when instructed, will be looking in depth at all such business interruption claims in light of the High Court’s judgement.
Why were business interruption insurance claims being rejected?
Typically, insurers were rejecting claims for 2 reasons: 1. Their interpretation of specific policy wording and 2. The facts on which each claim was based. However, it became apparent that a number of common grounds were being used by the insurance industry to reject claims, and these were used to fast track the case to the High Court.
On 15th September 2020, the High Court in London handed down its judgement in the Financial Conduct Authority’s business interruption insurance test case, finding in favour of the arguments for policyholders on many of the key issues.
The judgement is likely to go to appeal but there is now an onus on insurers to ensure they have systems in place to effectively handle claims that now have a higher probability of arising from Covid-19.
Based on the wording of the policy, insurance companies have been running two contradictory arguments as to why losses suffered by businesses were not covered by a particular policy:
- the businesses premises were closed (and losses suffered) because of Government imposed restrictions – not the Covid-19 pandemic; and
- the businesses premises were closed (and losses suffered) because of the pandemic – not the Government imposed restrictions.
These arguments were essentially based on insurance companies taking a very narrow interpretation of the wording of the insurance policy and arguing that the closure of the business premises was caused by whichever of the two ‘events’ was not covered by the policy. Fortunately for businesses, the court has found that to be a far too simplistic approach.
The High Court’s judgement will be welcomed by Businesses. But, successful claims will still depend on a policy’s precise wording
The test case decision will be welcomed by businesses – of whom the City regulator estimated that as many as 370,000 businesses could be affected by the outcome – as it establishes that, as a matter of principle, some of the grounds on which some insurance companies have relied to reject claims cannot be sustained. Claims will of course depend upon the precise wording of the relevant insurance policy and the particular facts, but the decision will at least give businesses confidence that there are grounds for challenging the basis upon which some insurance companies have rejected claims.
Our advice if a failed claim leads to insolvency
If your business has suffered from an adverse decision with a business interruption claim, you should appeal against the decision citing the High Court’s recent decision. Unfortunately, the delay in receiving a pay-out could starve a business of much needed cash flow, forcing a company to close permanently and go through an insolvency procedure.
Antony Batty & Company LLP will be looking at these insurance claims on all corporate insolvency appointments whether the claim has commenced or not. This could be a valuable asset which would lead to greater returns to creditors or even return a company to solvency.
For further information or to discuss your company’s current financial situation please email Marc Evans at marc@antonybatty.com, or contact any of our offices:
