If you are considering a claim on your insurance policy for loss during the Covid–19 lockdown, you need to read this.

As always, the wording of the policy will govern the availability and amount of a claim.

Stock and Suppliers
There may well be provisions to claim for the value of unused perishable stock but very often the loss will be subject to exception, e.g., the loss must be linked to mechanical failure such as a breakdown in refrigeration. Some exceptions go further in excepting loss due to the impact of a virus – possibly, this latter exception was developed as a result of the SARS outbreak. Similarly, some policies provide for a claim where there is loss due to damage at a supplier’s premises, but ‘damage’ is usually confined to physical damage and it has to be damage to the supplier’s premises. Insureds will need to check the definitions of these terms in the policy

Business Interruption Insurance
Most businesses will focus on a claim for loss of revenue during lockdown and which they hope is covered under Business Interruption Insurance. Yet given the wording in most policies, the prospect of a successful claim is unlikely.

Insured Event
The trigger to a claim will often be the occurrence of an ‘Insured Event’. – usually physical damage to property/premises such as fire, so damage or loss caused by a virus will be outside of the policy.

However, an Insured Event may be a non-physical incident or disease which hinders access to the Insured’s premises or causes a fall in the number of customers attracted to the vicinity.

Could the government announcement on 24th March 2020 to close all non-essential businesses be an Insured Event? If so, the Insurer may argue that in the absence of the mandatory order to lockdown, there would nevertheless have been a reduction in footfall because customers would have naturally withdrawn from the high street. Ironically, some insurers are resisting these claims because they say it is the government shutdown on 24th March which has caused the loss, not the disease/virus.

Closure/Denial of Access
Quite separately, under this heading, there may be cover for loss due to closure or denial of access on the advice of or with the approval of a medical officer of a public authority as a result of a ‘notifiable human disease’. On 5th March 2020, the Government added COVID-19 to the list of notifiable diseases and thus medical professionals had to report suspected cases to public authorities immediately. Whilst this might appear to trigger a claim, watch out for the policy wording such as a proviso that the disease ‘must manifest itself at the premises’ or ‘must occur within a mile of the premises’.

Current Commentary

It really does depend on the wording of the policy. Some policies do cover the situation, some do not. Whilst the FCA has urged insurers who are liable under their policies to pay out promptly, the watchdog has publicly recognised that most basic policies do not cover pandemics. Hiscox, who are facing legal action has said its policies are designed to respond to “localised events” such as a crime or an occurrence of Legionnaires disease – “The government’s decision to impose social distancing preventative measures to stop the spread of Covid-19 across the country is not directly aimed at limiting access to an individual business’s premises, or any particular business premise. Like terrorism and flood, which have government-backed insurance schemes, pandemics like coronavirus are simply too large and too systemic for private insurers to cover” (reported inews.co.uk 3rd April 2020)

Insurers facing large claims will usually make a provision in their accounts and the liability is absorbed in the figures for the following year, but insurers have said that their policies are not designed to cover the extraordinary circumstances of this pandemic. Certain insurers such as Aviva, RSA, Hiscox and Direct Line have cancelled their dividends, albeit with some pressure from the Bank of England. This is said to represent £1.3bn in collective payments to shareholders, including an £839.4m dividend from Aviva that was due in June 2020. Accordingly, insurers are taking the current potential of claims seriously. Insurers are now motivated to seek a new state-backed system to cover pandemics.

The London Stock Exchange reported on 22nd April 2020 from the international insurer, Hiscox,

“Hamilton, Bermuda (22 April 2020) – Acknowledging there remains material uncertainty due to the unprecedented events that are currently unfolding, Hiscox has conducted further analysis of its potential exposure to the COVID-19 pandemic and provides an update.

Hiscox is actively settling claims for event cancellation and abandonment, media and entertainment and other segments including travel. On the basis that disruption caused by restrictions on travel and mass gatherings continues for a six-month period from March 2020, Hiscox expects to pay net claims totalling up to $150 million. In the event that restrictions on travel and mass gatherings are extended beyond six months, Hiscox expects that these claims could increase by an additional $25 million.

Hiscox is also receiving claims as a result of economic losses following government action to stop the spread of COVID-19. Like others in the industry, Hiscox UK’s core small commercial package policies do not provide cover for business interruption as a result of the general measures taken by the UK government in response to a pandemic.”

Whilst not taking any direct action, the Commons Treasury Select Committee has heard from Kate Nicholls, CEO of UK Hospitality (the trade body representing over 700 companies across the sector), that 71% of claims by their members have been rejected. Obviously, the sector’s members will be insured with various insurers whose policy wording may all differ depending on the insurer and the extent of the policy. Whilst the Chancellor said on 17th March that the Government would do whatever it took to come through the crisis, it cannot order insurance companies to pay out when the policies do not so provide, it can only encourage prompt attention and interim payments when the policy wording covers the insured.

Whilst we have set out above the position announced by Hiscox, others such as Aviva, RSA, Hiscox and Direct Line, Phoenix, Admiral, Legal & General and Prudential are also sticking to their policy wording and are, in any case, hesitant to open the floodgates. Accordingly, it is likely that insurers will resist claims and seek to find an alternative solution with the government for the future. For the moment, Insureds will have to go it alone to fight rejected claims.
If you would like us to review your policy and advise as to whether a claim is possible, please contact us on info@lawsonsolicitors.co.uk.

Disclaimer: This Update is not a definitive analysis – take legal advice before pursuing any course of action. Copyright reserved