It’s important to bear in mind that the intentions of both insurers and policyholders are not material to the FCA’s case.
As far as the courts are concerned, the insurance is either there in a given policy wording or it is not.
Unfortunately, these cases are not straightforward and each policy is, in effect, a tangled web of duties and obligations.
Understanding the complexities of business interruption insurance
Business interruption is a particularly complex area and a good example of the coverage uncertainty which affects many other classes of insurance.
Typically, coverage for pandemic related losses in these policies is included in extensions concerning infectious diseases or denial of access – albeit often with a sublimit covering a fraction of the losses most businesses are currently facing.
Despite that, those companies that did buy such extensions may find in the weeks and months ahead that they have a battle on their hands when it comes to recouping Covid-19 related losses, even within those sublimits.
Mactavish has analysed a large number of policies and found that, although Covid-19 business interruption cover does exist in some cases based on proper policy analysis, there are multiple additional barriers to a successful claim which must be analysed carefully – from causal analysis of actual business losses, geographical proximity of known cases and the specific types of diseases included by the policy to ‘wide area loss’ principles impacting cover for large-scale events like the current crisis.
These barriers will not be obvious to most policyholders who, as non-specialists, are unlikely to have fully understood the nuances encapsulated in the policy.
It will be particularly galling for companies in this position to find that some infectious disease wording explicitly rules out ‘new’ diseases or global pandemics as opposed to localised outbreaks, yet they do provide cover for diseases such as cholera and bubonic plague.
Further, some property damage business interruption policies have extensions based on one narrow definition of ‘notifiable disease’ but exclusions in other sections based on a much wider definition of the exact same term.
This is far from clear and transparent to the policyholder, or indeed to anyone who isn’t extremely well-versed in insurance law.
Sadly, these issues are not specific to Covid-19; they have merely been made more prominent by it.
Mactavish’s own research suggests that 45 per cent of major claims are disputed, they take an average of three years to settle, and the typical settlement value is just 60 per cent of the amount claimed for.
Disputes have become the modus operandi of the industry.
