Business advice: wording of some insurance policies may allow claims on coronavirus closures

Businesses have been advised to seek advice if they think their insurance policy could cover the enforced closure caused by the coronavirus outbreak.

Last week Financial Conduct Authority interim chief executive Christopher Woolard said its conversations with the industry had led it to estimate that most policies would include only basic business interruption cover that did not cover pandemics.

However, a number of businesses and industry bodies, including Brasserie Blanc and the Night Time Industries Association are pursuing action, believing that despite having claims turned down initially, they have a case against their providers, in particular Hiscox.

David Noble, director of hospitality and leisure at insurance brokers James Hallam, explained that insurers will not have intended to cover the current situation, but that the writing of some policies may produce circumstances where a claim can be pursued.

He explained: “It was not the intention of the insurance industry to cover the Covid-19 pandemic that resulted in the closure of the UK hospitality industry. Insurance companies had suffered large losses during the Sars outbreak, so policy wordings were written to try and limit insurers' exposure to global pandemics. If they had priced for such an event, insurance premiums would not have been affordable.

“It was, though, insurers' intention to cover, where purchased, business interruption losses for outbreaks of infectious diseases on the premises or in close proximity to the premises. The government making Covid-19 a notifiable infectious disease triggered this cover in some policies. However, there were very few reported losses of this nature because shortly after the government closed hotels, restaurants, bars and pubs.

“While this triggered possible claims in some policies that extend to cover ‘non-damage denial of access’ to premises following the ‘closure by a public authority’, most policies contain a version of a pandemic exclusion. The words differ from one insurer to another and, in some cases, from one wording to another with the same insurer. For example, an insurer might have a specialist scheme arrangement for a particular class of business.

“Some wordings suffer from poor draughtsmanship, so it can be argued that the [pandemic] exclusion is not obvious, and in some cases it has been missed out completely. In these circumstances, it will be difficult for insurers to repudiate claims, despite what some have been saying in the press.

“My advice is, in the first instance, speak to your insurance broker. They can advise you on what cover you have. If you are not satisfied, seek a legal opinion, but if that is not a viable financial option at the moment, speak to a loss assessor. The good ones will give you an honest opinion on your cover and only charge on success.”

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