Business Interruption Claims & Covid19
The arrival of Covid19 in Ireland and the lockdown of businesses etc caused mayhem for many companies and their employees.
Many in the Insurance Industry had to take a detailed look at the Business Interruption policy wordings, to decipher whether the policy should respond to cover the loss or not. We ourselves examined over 20 of the most common commercial policy wordings available in the Irish market.
It was clear to us that the wordings that were specific about providing cover for Infectious Disease within a specified radius of the prermises would have to pay the claim. To our dismay and the dismay of many buisiness owners, various Insurers decided to decline cover by saying that they never intended to cover a pandemic; or that the losses were caused by social distancing and other Government restictions rather than the disease itself. Or the best of all – that Covid19 started in Wuhan, China and that was more than 25 miles from the premises.
FCA Test Case
The Financial Conduct Authority (FCA) in the UK decided to take a Test Case to the High Court in London to seek a ruling on whether the policies that had Infectious Disease or Denial of Access wordings should pay out or not.
The case was fast-tracked and the judgement was issued on 15th September 2020 – ruling in favour of policyholders. It remains to be seen if Insurers appeal the decision to the Court of Appeal or to the Supreme Court.
In our view they should spare the agony of their policyholders, and agree to pay the claims without any further legal costs and court time being expended.
“Protecting the Policyholders Position”
Our mantra has always been to “Protect the Policyholder’s Position”. If it’s in the wording; it’s in the wording. They need to “man up” now and proceed to deal with Business Interruption claims. It is better for the image of Insurers to be seen as part of the solution rather than part of the problem. It is in their long term interest that as many businesses as possible survive.
Some in the industry wonder if there are implications for the solvency of Insurers, or if premiums are going to be hiked up next year. In our view there should be no long-term effects. Firstly, there are generally inner limits on the cover for infectious disease – either time limits or monetary limits, on most policy wordings. Secondly, Insurers are able to withstand one-off catastrophic events. The cost for most Insurers’ Covid19 losses will be between €60m and €200m. This is not much worse than a severe weather event. Insurers may take a loss this year, but they have benefited from fewer motor and liability claims and this will offset the losses. In addition, Insurers will be excluding the cover from their wording at next renewal so they cannot price for a risk that they are no longer covering.