Business interruption insurance is intended to cover financial losses where business operations have been interrupted because of unexpected events causing damage to the property insured.
The coronavirus pandemic is definitely an unexpected event, and it has interrupted the operations of most businesses in the food and drink sector, including pubs, which were forced to close due to sanitation and contamination concerns.
Yet, many have experienced difficulties in claiming and accessing business interruption insurance. That’s because most standard policies are designed to cover damage caused by fire, flooding, earthquakes, etc. and are unlikely to be triggered in the current circumstances.
Even where policy extensions provide a wider scope of coverage, insurers are contesting that these were not intended to cover losses connected with pandemics.
While this push-back from the insurance industry is inevitable, pubs should not automatically accept their insurer’s denial or assume that they are not covered. Each policy is unique, and whether a claim is possible depends on the exact terms of the policy. If ambiguous, the wording should be interpreted in favour of the insured.
Some possible ways to make a claim
To limit exposure and contagion, the UK Government first advised the general public to avoid pubs, bars and restaurants on 16 March, leading to forced closures on 20 March. This forced closure may provide an opportunity for those in the hospitality sector to claim on their policy through numerous extensions – such as public emergency, Government or local authority action, or denial of access.
If a confirmed case of Covid-19 has been found on (or within a certain perimeter of, depending on the wording) your premises after the virus was officially recognised as a notifiable disease (on 22 February in Scotland, 29 February in Northern Ireland, 5 March in England, and 6 March in Wales), you may be able to claim if your policy includes a notifiable disease extension.
This extension was designed to cover situations where premises have been contaminated, or at risk of being contaminated by a highly contagious disease and have been forced to close as a result. It may be linked to a specific list of notifiable diseases, not including Covid-19, which was obviously unknown at the time the policy was drafted.
In this scenario, the insurer is likely to refuse cover on this basis but you could argue that in most cases, it hasn’t been specifically excluded from the policy either.
Examples of unfair denials
Manifestation v physical presence of the disease
The owner of two award-winning pubs in Cardiff saw her claim rejected after her insurer said that it would not pay out, unless she could prove a case among a member of staff or customer who was on the premises in the recent weeks before the pubs closed. This is almost impossible given the nature of the disease, when testing is limited, and immunity tests are not yet available.
Upon review, it turned out that the pubs’ business interruption insurance policy includes a “denial of access” extension, which provides cover for “loss as a result of closure or restrictions placed on the premises on the advice or with the approval of the medical officer of health of the public authority as a result of a notifiable human disease manifesting itself at the premises”.
Arguing that “manifesting” means having an effect at the premises and is different to actually being physically present on the premises, the owner has since written to her insurer to challenge their initial decision.
Advice v action from the Government
As a direct result of the Government’s advice to avoid bars, pubs, and restaurants on 16 March, a collection of gastropubs based in south Wales saw its trade decline overnight and had to close its establishments. But because it shut its premises before the official forced closure on 20 March, the group was advised that it would not be able to claim business interruption insurance.
Upon review, it was found that the policy included a “Government or local authority action” extension covering loss “resulting from prevention of access to the premises due to the actions or advice of a Government or local authority due to an emergency, which is likely to endanger life or property”.
The policy clearly provided cover for loss arising from prevention of access due to Government “advice”, not just action. Refusing payment because the Government had not yet enforced the closure of the business was, therefore, incorrect. The group wrote to its insurer, which has since agreed to pay out.
Next steps?
The examples given above are not exhaustive because every policy is unique, which is why you should first consider having your policy reviewed by a professional.
If your claim appears to have been unfairly denied, you should start by complaining directly to your insurer. If the claim is still rejected and your insurer issues their final response, you can either complain to the financial services ombudsman or take legal action.
Now is the time to act because most policies set out claims conditions requiring policyholders to notify them of an event ‘immediately’. There are also likely to be conditions requiring you to notify the insurer that your premises are vacant and to check them regularly.
Going forward, you should ensure that your policies are sufficient for your business’s needs. Your broker should be able to advise and organise insurance cover that meet your business’s specific requirements.
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