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As we move into the third week of the government’s strict containment measures, the prolonged interruption to business activity means many businesses face the unenviable combination of depleted revenues and increased costs.
Some of these businesses will be seeking to recover such losses under their Business Interruption (‘BI’) insurance policy. BI insurance is usually added to commercial property insurance and generally provides cover for loss of profit and increased costs caused by damage to property by standard risks such as damage to premises or equipment caused by fire, flood, theft or accidents involving employees.
As a Pro-forma BI policy is designed and priced to cover standard risks, it is, therefore, unlikely to cover the effects of COVID-19. However, there are several extensions to such a policy that might, such as restricted access cover or non-damage business interruption caused by a notifiable or infectious disease.
It remains to be seen whether insurers will indemnify their policyholders for the inevitable consequences of the pandemic, but recent developments between Hiscox Insurance and several of its BI policyholders indicate that such policyholders may have to engage in aggressive litigation to ensure maximum recovery.
As the COVID-19 pandemic gathered pace at the start of the year, Media Zoo, a London-based PR agency, acted on the advice of their insurance broker and took out a BI policy with Hiscox. Media Zoo was advised by its broker that it would be covered in the event the pandemic would force its offices to close.
Their BI policy seemed clear and unambiguous. Media Zoo was afforded cover up to £5.3m for financial loss arising from the inability to use the insured premise due to “restrictions imposed by a public authority” that was caused by “an occurrence of a human infection or human contagion disease”.
The government’s containment measures led to a 15% drop in revenue for Media Zoo, reportedly worth hundreds of thousands of pounds. When they contacted Hiscox to recover their losses, they were informed that BI cover was limited to businesses that have been forced to shut down their office due to a contagious disease being found on the premises or within a one-mile radius.
Hiscox argued that, as the government has directed offices to close as part of a series of measures to prevent the spread of COVID-19 rather than preventing an outbreak traced to an individual business’s premises, they had grounds to reject Media Zoo’s claim.
In a statement prepared for the PRWeek publication, Hiscox stated that BI policies were not designed to cover the “extraordinary circumstances” caused by the pandemic, which they argue is more akin to the government-backed schemes for losses caused by terrorism and flood risks. Hiscox claims that these events are “too large and too systemic for private insurers to underwrite”.
It remains to be seen whether Hiscox’s argument will stand up to rigorous legal scrutiny. However, in similar scenarios, it may be that a policyholder’s best chance of recovery is to issue proceedings against the insurance broker who advised them to take out the policy.
Myerson’s Dispute Resolution and Commercial Litigation team has an excellent track record in professional negligence claims, including where an insurance broker fails to give appropriate advice to a policyholder.
Media Zoo has garnered support from other policyholders and headed a letter to Alok Sharma, the Business Secretary, calling on the government to investigate the conduct of Hiscox for failing to pay out on “valid” claims relating to the Coronavirus pandemic.
If Hiscox maintain their position, it is likely that they will be subject to group litigation from its policyholders seeking to recover their losses. The Financial Conduct Authority (FCA), has stressed that insurers must pay SME policyholders promptly, subject to the validity of their claim, to dissuade other insurers from adopting Hiscox’s stance.
In an open letter published on 15th April, the FCA’s interim Chief Executive Christopher Woolard emphasised that payments under BI policies must be made in a timely fashion to “ensure that financial pressures on policyholders are not exacerbated by slow payment”.
Although the FCA has warned insurers to promptly pay its SME policyholders, it remains to be seen whether other insurers will mirror Hiscox’s position for its larger policyholders in order to avoid a commitment to underwrite significant losses.
At Myerson, we specialise in advising policyholders in claims against insurers and can guide claimants through the litigation process to ensure that they recover the maximum amount at no excess cost.
Potential claimants may need access to urgent funds to recover damages from insurers. In such circumstances, we can be retained pursuant to alternative fee arrangements.
We also specialise in advising smaller, owner-managed policyholders on claims to the Financial Ombudsman, which has the power to award up to £350,000 to settle claims between insurers and policyholders.