Guide to assess if you have a valid business interruption insurance claim
This article isn’t insurer specific and is therefore quite general in nature. So it won’t be perfect guide to assess if you have a valid business interruption insurance claim and there may be some fine print in your own policy which may affect things.
To use this guide you need to have both your Policy Schedule and Policy Wording to hand, so you can cross-refer as you go through the four steps below.
At the end of it, you should at least know if you have a decent chance of claiming, and whether it would worthwhile.
Do you have Business Interruption insurance cover?
Pull out your Policy Schedule and check to see if it includes Business Interruption. This cover is not always included, it varies quite a lot and normally attracts an additional premium, so some businesses choose against insuring it.
It is usually simple to locate as it will be clearly detailed on the Policy Schedule. If you don’t have this cover then you won’t be able to claim under your insurance for the impact of Coronavirus to your business.
Types of Business Interruption insurance coverage
There are various types of cover that you may have, but generally they will be one of the two core ones below, or a combination of both:
(1) Compensate your business for a decrease in turnover caused by certain insured events, whether that is as a loss of revenue, or a reduction in profit
(2) Pay certain additional expenses your business incurred to keep running, again only where caused by certain events
The events that trigger Business Interruption usually mirror those that relate to the property you insure, such as fire, theft and flood, and therefore normally involve some form of damage.
This brings us to Step Two
Do you have the relevant extensions to your business interruption insurance?
You will need the Policy Schedule for this step as well, and possibly the Policy Wording too, as some insurers do not list these extensions on the Schedule. Check both.
Business Interruption normally includes a few extensions, and although there are some commonalities, they do vary. These extensions normally have inner limits, and usually no more than £100,000.
Some of these extensions do not require physical damage to the insured property, and are triggered due to various other events. However in order for there to be any chance of cover under the current Coronavirus lockdown you need to have at least one of the following:
This is designed to respond where the premises cannot be used due to an incident which forces the premises to close. This can be for things such as food poisoning or a murder on the premises.
Non Damage Denial of Access
This is designed to respond where the local authority prevents or hinders access to the premises following an incident within the immediate area. An example of this could be a gas leak or suicide nearby, leading to the closure of the surrounding streets.
If you don’t have either of these extensions within your Business Interruption you won’t be able to claim under your insurance for the impact of Coronavirus to your business.
Are diseases included/excluded?
We have now moved from the Policy Schedule to the Policy Wording.
The next aspect to check is whether your Business Interruption cover includes the impact of diseases.
Taking the Public Authority extension, you are looking for the Policy Wording to explicitly state cover is included for Notifiable Diseases; those which if they were to occur you would be obliged to notify the local authorities (Covid 19 has been confirmed as one such disease).
This would be found under the Public Authority extension section of the wording, noting sometimes insured diseases are referred to slightly differently, for example they could be referred to as “human contagious diseases”.
Non Damage Denial of Access (Not Excluded?)
This extension works differently, as diseases are not normally referred to specifically.
For this element you need to check both the Business Interruption exclusions, and the General Policy exclusions, to see if there is any form of exclusion for Diseases, whether notifiable or not.
If there is an exclusion you need to check if it would apply to Covid 19. For example, if the exclusion referred to all Notifiable Diseases being excluded, then there would be no cover for the current situation. The same would apply if there was a specific exclusion for Pandemics.
However, the disease exclusion could refer to certain specific diseases being excluded, such as AID’s. In that instance, as long as COVID 19 (or similar) was not listed then cover should still apply.
If you’ve passed through this with cover still intact, then you can move on to Step Four.
Is COVID 19 excluded i your business interruption insurance cover?
We are still looking at the Policy Wording, and this is where it gets a little more complex.
For the first three steps we have satisfied ourselves that there is Business Interruption cover in place, that it includes the required extensions, and that is includes diseases.
Our job now is to check that COVID 19 is potentially covered within these diseases
For this we are checking to see what diseases are covered, and what are not, so we need to look at the Policy Definitions (noting sometimes this is included within the actual wording of the Extension itself – so check both).
Some policies will include a specific definition for Notifiable Diseases (or similar). Where that is the case this definition needs checking carefully.
Does the definition include a list of specified diseases? If it does then COVID 19 will almost certainly not be one of them being a recently known phenomenon (if it includes reference to influenza or similar you could try to argue the case with insurers) in which case the current situation would not be covered.
Does the definition exclude certain types of disease? If it does, and if COVID 19 could be considered one of those diseases, then there will be no cover for the current situation. For example, the definition might make reference to pandemics not being covered, or any influenza/upper respiratory disease.
Where the above is satisfied, or where there is no definition of Notifiable Diseases, we would suggest you have ticked the four core boxes. In our view the policy should respond and you should now consider whether to submit a claim.
Should I make a claim under my business interruption insurance?
Assuming you have come through all four of the above steps and ticked all four boxes, then the policy should technically be triggered and you can look to make a claim, so the question now is should you?
This is a question that will be more difficult to answer for some businesses than others, and a lot of it will come down to how much you can claim versus the negative impacts from claiming, whether just the hassle or possible future premium increases.
This is an important question and is impossible to definitively calculate, but below are a few things to consider:
It’s all about your premises
The first thing to understand is that Business Interruption cover specifically applies to the premises from where you operate, so any claim amounts will relate to that.
It won’t pay for the general downturn in the economy from COVID 19, such as where clients pull projects, or there being an absence of new business opportunities. That is just not an insurable risk.
It also means that if you could operate remotely effectively, and still deliver for your clients, then there is unlikely to be much you could claim for. This is because any reduction in turnover would not be due to the closure of the premises, but from an absence of business to work on.
For example, a photography studio whose revenue relies directly on clients attending sessions at their studio would probably find it worth making a claim, whereas a freelance photographer who already operates from home would probably not.
This is why this cover is more relevant to businesses in the hospitality and retail sectors, than the professional or digital services sectors, as the latter can generally work remotely without major direct impact on their income.
If you have loss of revenue or profit cover
Theoretically you are looking at how your revenue or profit has dropped from where it should be, however you need to consider how much of that is a direct result of the premises itself as mentioned before.
You then need to consider how other factors might affect the amount you can claim.
For example, if your turnover was down to 25% of normal before the lockdown, then it is likely that any claim paid would be reduced proportionally to a similar level (as the general downturn from the virus is not what is covered, but the direct impact from the closure)
Note: It is our view that even though the turnover would have dropped down, it would not be at zero, as could be seen from the numbers still visiting public houses until the minute before the lockdown commenced.
You will then need to bear in mind that claims may be reduced in consideration of assistance provided by the Government, whether that’s from grants, rate reliefs or furloughing employees. With the COVID 19 situation being unprecedented we won’t know exactly how those factors will be taken into account until such time as claims get settled.
If you have increased costs of working type covers
If your insurance provides you for the additional expenses incurred from the incident, rather than the diminution of income, then what you can claim for will be quite different.
This is where there might be some cover for agencies and other professional service firms.
This cover would pay for the additional expenses to carry on operating, and thereby keeping the business operational. For the current situation this could be costs to enable the business to work remotely effectively, so could be additional software licenses, purchase of home based printers/stationery or payments to IT contractors.
These claims will generally be of a lower amount compared to loss of revenue/profit covers.
Note: the additional expenses covers can vary, with some being subject to the expenses being economical, i.e. that the amount of money spent is less than what the impact would have been on the turnover.
What about my claims experience?
With any claim it is always important to consider how it will affect your claims experience, and each insurer will act in different ways, and will even vary on whoever the individual is who underwriters your policy.
With COVID 19 claims we would suggest that insurers will not be covering these situations in the future, so you would effectively be claiming for a unique event that could not be the subject of a valid claim in the future.
Therefore we believe it is less likely to have a negative impact on future premiums than business interruption from simple thefts or water damage.
If you came through all four steps then we believe you will likely have a valid business interruption insurance claim
If you then could feasibly claim for an amount which would make a difference to your business, then we would suggest submitting a claim to insurers.
We cannot guarantee it will succeed as this situation breaks new ground, but in our professional opinion if you tick all four boxes it should be covered.
Insurer and Broker Stance
The COVID 19 situation we find ourselves in is unprecedented in our lifetime. It is also unprecedented from an insurance perspective.
Where some insurers clearly do not cover these risks, such as those who only cover a list of specified diseases, there are others whose policies clearly appear to respond.
With the situation being unprecedented, some of these insurers are quite concerned about the scope of the losses they could be facing, and how it could affect their future. This has led to some dubious arguments from insurers as to why claims are not covered. Do not be put off from claiming by such responses.
The same goes for some brokers and MGA’s, who appear to just be accepting the position of the insurer. If you tick all four boxes we’ve detailed earlier, yet your insurance broker still maintains that the claim isn’t covered, don’t stop. Submit the claim as you have nothing to lose other than time.
The general business interruption insurance claims process will be:
Submit the claim to insurers outlining clearly that the claim is in relation to the COVID 19
The claim is likely to be rejected presently, at which point make a formal complaint.
(3) Go to the FOS
When the complaint has been repudiated, assuming your turnover is below £6.5m, then take your claim to the Financial Ombudsman Service (FOS). Their decision is binding on insurers, and they are generally more favourable to the weaker party in the contract, which in this case is you (the insured).
Note: If you are to make a claim, do it promptly in writing, as although insurers may eventually not be able to rely on their arguments around the circumstances being excluded, they can comfortably deny liability for late notification. Don’t fall into that trap.
Michael Henderson from RiskBox Insurance – having spent 20 years in commercial insurance, Michael saw the industry’s need for a premium service that protected creative companies. He founded RiskBox with the aim to rebuild trust and reduce confusion in the insurance sector – giving business owners a place to turn when they need it most.