Covid-19 has had a huge financial impact on many UK businesses, with some having to cease trading completely. Many business owners have suffered a significant amount of revenue loss due to the lockdown restrictions.

The Government has provided help through various initiatives such as the job retention scheme and business support grants. However, this may not be enough to keep some businesses going. It is now important for businesses to start looking at their insurance policies to see if they are covered by a Business Interruption (BI) clause.

Here, we have provided an outline of BI insurance and what to do if your insurer rejects your claim.

What is a Business Interruption clause and why is it important?

BI insurance, generally, covers a business for the loss of income due to an interruption to normal trading as a result of an external factor that cannot be controlled, such as a fire or flood at the premises. BI insurance aims to put your business back in the same trading position before the unexpected event occurred. Some BI insurance policies do cover loss of income due to other circumstances such as infectious disease or public authority closures/restrictions. If your policy clearly states the latter, you should consider making a claim for losses as a result of Covid-19.

How do you know if you are covered?

It is important to determine whether or not your policy covers losses caused by (i) Covid-19 and (ii) the Government’s response to the pandemic. The Financial Conduct Authority (FCA) has already reaffirmed the insurance industry position, which is that most policies have only basic cover and do not cover pandemics and therefore, may not have to pay out.

In assessing whether your business is covered by BI insurance it must be established that the claim falls within the wording of your policy. If your BI insurance does not clearly state that it covers you for infectious disease or public authority closures, you may find your claim is rejected. It is vital that you carefully scrutinise your insurance policy to check your entitlement as many policies are not always clear. If you find yourself in this situation you should seek legal advice, especially if you are unsure of the terms of your BI policy.

What should you do if your claim is rejected?

If your claim is rejected by your insurer and you believe the decision is wrong, you should challenge the decision by making a complaint to the Financial Ombudsman Service (FOS). The FOS is available to consumers, charities, trusts and small and medium-sized businesses. The service is free and relatively straightforward. However, if you wish to use this service you must have made a complaint to your insurer before contacting the FOS.

As the FOS is not necessarily bound to follow the law when coming to a decision, it can be beneficial to businesses. Their determination is based on ensuring that they are fair and reasonable in all circumstances. Of course, relevant legislation will be taken into account during the decision as this gives the ombudsman a broader discretion to find a fair decision.

There is a limit on the amount of compensation that can be awarded by the FOS, which is capped at £355,000 for complaints made on or after 1st April 2020. The FOS can recommend that further compensation is to be paid by insurers, but they do not have the power to enforce this. If you believe you are entitled to compensation exceeding this amount you should speak to a legal professional who can advise the best course of action.

Coordinated legal action

Another option, which has been seen and documented by the media recently, is a coordinated legal action against an insurance company. This is where customers who have all had the same difficulties in receiving the BI compensation come together to take legal action against the insurer. For this to be successful, there needs to be a number of businesses that have the same complaints against the insurer and the action must be well-publicised. For example, the Hiscox Action Group, made up of over 100 nightclubs, pubs and bars, is planning coordinated legal action against Hiscox Insurance due to its non-payments of BI insurance claims during the pandemic.

Expert legal advice

The situation surrounding BI claims is continually evolving, with the FCA starting proceedings in the High Court as a test case to seek clarity of the meaning and effect of BI insurance policy wording in the context of Covid-19.

How Blaser Mills Law can help

If you are unsure of your position or believe your claim has been wrongfully rejected, please contact, Alka Kharbanda on 01494 478611 or at Alka will be able to assess your policies and unique circumstances to ensure you are able to reach the best possible outcome.