May 5th 2020
Potential Business Interruption Insurance Claims: COVID-19
Potential Business Interruption Insurance Claims: COVID-19
The recent coronavirus pandemic is presenting the legal and business worlds with many challenging but novel issues and they are being addressed often with innovative ideas.
In the last few weeks, various media have reported on business interruption insurance.
A great many companies are now carefully checking the terms of their business insurance policies to establish if contagious diseases are covered or are somehow excluded. The press has reported on proposed litigation by a consortium of small businesses against the insurer Hiscox for refusing to accept claims for business interruption loss which they believe should be paid out in the circumstances of a ‘notifiable disease’. Hiscox appears to be particularly affected.
According to the BBC website (15 April 2020: Coronavirus: ‘My business could go bust if insurers don’t pay’) Allianz and Aviva said they did not cover any diseases that are not named in the policy (Aviva changed its terms following the 2003 SARS outbreak to exclude any new diseases).
Zurich said that they “generally” did not provide cover for global events. Axa and RSA said some of their policies may cover business loss caused by a coronavirus outbreak on the company premises but they generally only list diseases which would be covered. However, each policy will turn on its wording.
Hiscox has said its policy wording was intended to cover localised outbreaks such as legionella and was not intended to cover a pandemic. Insurance policies need to be read as a whole and not just judged on the business interruption clauses in isolation. Insurance cover might also be available for indirect losses, such as the failure of a supplier or failure of payment by debtors. Policies will need to be checked carefully for any exceptions where the insurer might be able to avoid paying out on such claims.
On the 15 April, the FCA published a statement, “There are policies where it is clear that the [insurer] has an obligation to pay out on a policy…” and has encouraged insurers to settle those claims quickly. In the case of Hiscox, the insurer has stated it cannot afford to cover all potential business interruption claims which it estimates is included in 10% of its business cover for SMEs. The strength of an underwriter may be tested if a number of claims are accepted but the insurer cannot pay out.
The company may also have a claim against a broker if any incorrect representations were made about the policy or the advice provided on taking the policy was wrong, but each claim would turn on its own facts and the evidence available. The losses may be limited to the cost of premiums. Such claims may be worth investigating and engaging in case a resolution can be made.
If an insurance claim for loss is being pursued, the following issues remain to be considered when cash is in short supply:
- Whether the company can successfully prove the quantum of the loss suffered. For business interruption this might not be straightforward.
- Most policies will limit the amount of losses payable which might not be sufficient to cover the total losses suffered.
- Most policies will likely require a claim is notified to the insurer within a short period of time. Time might be of the essence and therefore fatal to a claim if missed. However, limitation may not continue to run if e company enters liquidation.
- Whether the insurer can reasonably reject the claim and how much effort should be made to pursue a disputed claim.
An insurance claim remains an asset of the company, even if the company subsequently falls into an insolvency process, which can be realised by the office holder on behalf of the estate. A liquidator or administrator can decide whether to pursue the claim on behalf of the company. Even if a claim has been rejected by the insurer, the office holder might wish to review whether an appeal might be made or whether the insurer was entitled to reject the claim.
Manolete has experience in funding and acquiring contract claims and third party claims including insurance claims.
Refusing to talk may be unreasonable behaviour
Two recently reported cases emphasise again the importance the courts attach to parties actively engaging in settlement and dispute resolution processes and demonstrate the willingness of the courts to punish those who don’t.
BXB v (1) Watch Tower and Bible Tract Society of Pennsylvania, (2) Trustees of the Barry Congregation of Jehovah’s Witnesses (No.2)  EWHC 656 (QB) was not about religion but about damages for rape and assault. Failure on the part of the Defendants to deal with proposals for a joint settlement meeting, even though there were reasons for the refusal, was held to warrant part payment of the claimant’s costs on the indemnity basis.
Chamberlain J found that “Silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable”, regardless of whether a refusal might have been justified by the identification of reasonable grounds. He relied on a dictum in a judgment of Briggs LJ, as he then was, in PGF II SA v OMFS Co Ltd  EWCA Civ 1288 that “a failure to provide reasons for a refusal is destructive of the real objective of the encouragement to parties to consider and discuss ADR, in short to engage with the ADR process”.
DSN v Blackpool Football Club Ltd  EWHC 670 (QB) followed a trial in which the substantive judgment had already been given ( EWHC 595 (QB)) and concerned largely issues of costs. The judge was highly critical of the Defendant’s refusal to engage in any settlement attempts, finding its conduct “outside the ordinary and reasonable conduct of proceedings” and ordering it to pay the claimant’s costs on the standard basis for an initial period but on the indemnity basis from 1 December 2018, a little over a month after an Order was made for the parties to consider ADR.
At Manolete, we encourage settlement from the earliest stages of litigation, utilising all forms of ADR. That is why so many of the cases we back are dealt with and completed in less than a year, keeping costs proportionate and maximising returns to the Estate. With a reputable third party finance firm behind your claim, Defendants are usually more willing to engage in early commercial discussions.