Insurers must pay many small firms for Covid lockdown losses

Today the Supreme Court found largely in favour of small firms receiving payments from business interruption insurance policies. This is something that could have a potential impact on agents in terms of what they can claim for, which may have potential significance on their businesses. 

When business owners needed the support, it was disappointing to see a lack of recognition by their insurers of how Covid-19 impacted these businesses. This judgement has been extraordinary in opening up the original responsibilities by the insurers and taking them a step further to support our members and our industry. Notably:

Prevention of access clause has been given a broader interpretation, which in particular impacts businesses who have been affected by partial rather than full closure. Many of you have been affected by partial closure and not full closure as you have moved your businesses online and had to stay operating to transact credit notes and refunds. This caused us concerns that insurers would argue your business is still operating, albeit online or over the phone therefore not recognising the full-scale impact of Covid-19 with the Government ban on travel. Where we have seen insurers paying out claims, they have been reluctant to recognise the full distress of the business and they have been reducing the indemnity due to the Policyholder to a fraction of the needed pay out.

The Supreme Court has also taken a broader interpretation of causation. This means the burden is now placed on the insurer to deny cover, rather than the insured proving there is cover and that the insurers will find it challenging to reduce the indemnity due to the insured.

We are delighted to see the courts have now recognised how businesses have been affected and appreciate how business owners are reacting to these unprecedented times.

It should be noted that this does not mean there is a blanket case for insurers to pay claims, but it means where there were grey areas in the interpretation, the technical legal work has already been managed by the FCA in the test case.

Where policies do not have the Business Interruption extension, or if the wording has explicit exclusions for denial of access or an exclusion for infectious diseases, then it would be unlikely they would be successful in their claim.

We urge members and the industry to read your policy wording and to speak to your broker or direct with your insurer to discuss what opportunities you have for a successful claim.

Each of you will have your own individual policy with various insurers. We are aware that many of you have taken the government loans in order to support your businesses and so we can imagine any support from the insurers would be a welcome relief to your cash flow.

We are currently speaking with a couple of Advantage members who have come forward for assistance in interpreting their policies and we are pleased to assist our members wherever we can.

To obtain a quote or to discuss your bonding or insurance requirements, please call AFS on 020 7324 3938 or email [email protected].

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Heather Haggis

Head of Financial Services and Insurance Broking for Advantage Financial Services (AFS)

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