Insurers should be willing to negotiate coronavirus claims to avoid courts becoming overwhelmed with disputes, a study has warned.
The study by Dr Kyriaki Noussia, senior lecturer at the University of Exeter Law School, warned of cases going to court as many insurers “will reject satisfying coronavirus claims” due to ‘force majeure’.
Force majeure clauses allow contractual obligations not to be performed due to an extraordinary event.
The study claimed it would be “better for both sides” to try to negotiate using alternative dispute resolution methods than take cases to court.
Mr Noussia said: “It is likely the courts will be flooded by insurance claims, leading to a backlog in cases being heard. The right approach would be for the insurer not to just immediately reject claims, but to try to negotiate a sum to be awarded as compensation if possible.
“Rather than saying no and passing the problem to the courts it is better if insurers and claimants work together to find a solution”.
The research found some insurance contracts contained detailed wording on what was covered by force majeure, including ‘acts of God’ such as earthquakes and volcanic eruptions.
This comes after earlier this month (June 1) the Financial Conduct Authority (FCA) confirmed it had selected 17 policy wordings from business interruption policies to use in a court case to represent key issues in dispute between policyholders and insurers.
The FCA intends to place before the courts a sample of cases where it is uncertain whether a business is covered by its business interruption insurance for losses caused by the coronavirus fallout.
Business interruption insurance covers a firm for loss of income during periods it cannot carry out business as usual due to an unexpected event.
According to the study by the University of Exeter Law School, the difficulty in current business interruption claims was “proving the causal link” between the government’s lockdown measures and the occurrence of business interruption.
The study also warned that many policyholders would find that their business interruption policies did not cover the impact of coronavirus, “due to certain exclusions in the risks covered or in the way that force majeure is interpreted by insurers”.
Additionally, the study warned that policyholders looking to renew their insurance would have to pay more for some policies, particularly if they wanted to be covered against the impact of coronavirus. It also warned that insurance companies “may refuse to provide coverage against coronavirus”.
chloe.cheung@ft.com
