Covid-19: Business Interruption Insurance Claims Update
What is the latest with Business Interruption claims?
Much has been written in recent weeks about Business Interruption claims and there will be much more to come in the next few months with test cases here and in the UK going ahead. FBD Insurance plc has set aside €22 million to cover potential costs in case it loses a test case due to be heard by the Commercial Court in October brought against it by Pub owners over whether their policies cover the disruption in their trade caused by COVID-19.
What does this mean for me?
Many of you have Business Interruption cover. It is commonplace to have it included in commercial insurance packages. However, there are subtle differences in the precise terms of each policy and these differences will determine whether you have a claim or not. The only thing that is clear at this stage is that the question of coverage is not clear cut!
In most policies, Business Interruption is divided into two parts: –
1. The main cover which will firmly link any cover to damage (loss, damage, destruction) to your premises. Therefore, you will only be covered where the premises you have insured is physically damaged so as to prevent or interrupt the business you carry on taking place in it. In this case, the extent of cover is generally calculated by reference to the Gross Profit you would have earned compared with the Standard Gross Profit you were earning from the business. Some Policies will have a Trends Clause, which arguably requires you to take into account prevailing circumstances such as damage to the surrounding geographical area, economic slowdowns, etc.
2. Many policies have developed beyond the standard Business Interruption clauses. They have added Extensions to the standard cover which provide Non-Damage cover for Business Interruption where you are prevented from using your premises or your access to your premises is restricted. These clauses do not depend on physical damage to your premises but they do depend on the many factors stated in the policy. In general, they require an order to be made by a competent authority shutting down your premises.
Closure can be for a number of causes but most relevant at present is where there is a Notifiable Disease. A Notifiable Disease can be defined in the policy, in which case it is unlikely that COVID-19 is included. In other policies, the definition of Notifiable Disease is linked to a disease which is required to be notified to a local authority. In February 2020, the HSE declared that COVID-19 was a Notifiable Disease which means that there is a good argument in respect of these policies to say that COVID-19 is a Notifiable Disease and is therefore covered.
As is always the case that is unlikely to be the end of the story. The remainder of the Non-Damage Business Interruption Clause is likely to require one of a number of things. Some policies may require the occurrence of a Notifiable Disease on or at the premises. If this did not happen then there is likely to be no cover. Other policies require the Notifiable Disease to have occurred within a specified radius of your premises or within the vicinity of your premises. There is much more scope for argument in relation to these policies.
So what is happening with these claims?
Many, if not the majority, of claims are being declined for one of the above reasons. In addition, some insurers are declining cover on the basis that COVID-19 is not the sole and direct cause of the loss. This is a complicated argument but in short, they are saying that if there is more than one cause for closing your premises, and these causes are separate, then you have no cover. In the case of COVID-19 it is being argued that the closure of your premises is one cause for your loss, while the fall off in economic demand due to the pandemic is another cause for your loss and/or the Government imposed restrictions are yet another cause for you loss.
You would be right if you think this sounds overly technical. The principle is encapsulated in English case law, but the position is far from clear. First, as a matter of fact, the act of breaking up the pandemic and its effects into several causes may not be correct. It may well be the case that there is just one cause at play, namely, the COVID-19 pandemic. In which case this issue should not arise. Secondly, even if it is correct to separate the restrictions and the pandemic itself, this is unlikely to be the end of the matter. It is likely that a court or an arbitrator will have to consider whether it is fair and reasonable to exclude cover on this basis or whether some damages should be award in respect of the causes that are covered.
There is considerable argument to be had and this is what is in fact happening. In Ireland there are a number of test cases against FBD that are due to be heard in early October 2020. It is likely that a judgment will be handed down by the High Court in early 2021 if not before. These test cases will not resolve all of the interpretation points in respect of the wording of a particular policy but it is likely to resolve the issue of whether COVID-19 should be split into several causes and what is the consequence of doing so. The test cases will also provide a good road map in respect of several other claims, although there may be the possibility of an appeal which may delay matters. The Restaurant Association of Ireland is also supporting a number of cases against one Insurer designed to address the wording of a specific policy. The procedure being adopted is hoped to speed up part of the process and may bring pressure on Insurers to reconsider their decisions to decline cover.
In the UK there is an ambitious test case that commenced on the 20 July 2020 and is running for 8 days. That case is being brought by the Financial Conduct Authority (FCA) against 8 named Insurers in respect of 12 Business Interruption Clauses in their policies (some insurers have more than one policy under consideration). It is intended that these 12 policies will be determinative of other policies (not directly involved in the case) on the basis that the relevant clauses are materially the same. At present there are 13 other insurers falling into this category bringing the total number of insurers whose policies will be directly or indirectly considered to 22. The FCA and the Insurers have agreed an extensive list of Questions for Determination which cover the typical wording found in most of these policies. The outcome of the FCA test case will not determine the issues that are likely to arise in claims in this jurisdiction, but it will be persuasive and at the very least it is going to provide invaluable insight.
What should you do now?
The vast majority of you unfortunately will have suffered considerable loss due to COVID-19 closures. If you have Business Interruption cover with an extension that includes Non-Damage Restriction on Use of premises or Denial of access to premise, then there may be potential to reclaim these losses. You may have already been declined cover directly by your insurer or through your broker, but that may not be the end of the story. Depending on the wording of your policy and the outcome of the test cases your claim may well be valid. You must notify your insurer in accordance with the notification rules in your policy. Typically, this means notifying them without delay or within a set time as set out in your policy. If you are outside these time limits this may not be the end of your claim, but it will add further complication to it. If cover is declined, then you should take preliminary legal advice as to whether there is scope to challenge the declinature of cover. As said above, matters are likely to become much clearer in the weeks to come and you should not abandon what might otherwise be a good claim without proper advice.
This document is intended to provide a general overview and guidance on a particular topic. It is provided wholly without any liability or responsibility on the part of Compton Solicitors and does not replace the necessity to obtain specific legal advice.
Here at Compton Solicitors we understand the dire economic circumstances that businesses are experiencing at present. Please contact Lorraine Compton on 086 253 4651 or Fiona Tonge on 089 471 4128 with any queries
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