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Nearly 400,000 small businesses are waiting to see if insurers will be forced to pay out on their business interruption policies after a landmark High Court case was heard in August.
The issue of whether business interruption insurance policies cover pandemic-related losses is one of the most controversial legal issues resulting from the coronavirus crisis. In bringing its test case to the High Court, the FCA is aiming to provide a roadmap to businesses and insurers regarding how to interpret the wording of policies and therefore the amount that should fairly be awarded.
Worth potentially billions of pounds, the case has involved examining 17 policy wordings from eight different insurers in order to determine whether COVID-19 triggers a pay-out. However, the ruling is expected to have ripple effects for the entire marketplace, with its conclusions likely to be applied to other affected claims
The leisure industry is typically conducted ‘at location’, which is most affected by denial of access. Businesses such as restaurants, gyms, bars, swimming pools, etc., that are all location specific, are therefore more likely to be impacted by the change. Loss mitigation is also harder– a restaurant may adapt to serve more takeaways, or a gym could offer online classes, but the perceived value is often lower. By contrast, the retailers were already shifting online and Covid-19 has definitely accelerated this trend.
It’s very important to consult your insurance documentation, and to approach the insurance company. Many policies will have a cut off to make a claim, so engaging early would appear prudent.
One of the challenges of the test case in the High Court will be to determine not just whether the losses should typically be covered, but also what losses. For example, would the time period cover all losses that can reasonably be shown to be caused by the Pandemic or would the losses only be insured for the time period that the government required the business to close. Further, with some businesses currently opened at reduced capacity, there is an additional question as to whether these losses would be covered.
If the claim is accepted, it’s likely that a loss adjuster working on behalf of the insurer will consider the claim. It is also possible that there are simply too many claims for a loss adjustor to handle. Therefore, it may be that a process will need to be set up by the FCA or a similar government body where the majority of claims are processed by simply comparing profits during a comparable unaffected period. If the loss is obviously exceeding the insured amount, then this will likely be a more straightforward process.
Generally, however, a loss of profit claim can be much more complex, as it will be required to be tailored to an individual Business (rather than the loss of an asset that is comparatively easy to value, such as a car):
In certain circumstances we might find that where losses are complex, the claim will be passed on to a forensic accountant by the insurance company, or otherwise engaged by the business to challenge the findings of the insurance company.
If you have any questions about loss of earnings or making a potential claim, we would encourage you to get in touch with a forensic accountant. Please feel free to get in touch to discuss with the team here.