News analysis: Industry under pressure as backlash over business interruption continues 

Legal disputes over coronavirus-related BI claims have put insurers’ responses to the crisis in the spotlight

Business interruption insurance has become the most pressing issue for the insurance sector during the coronavirus crisis as the UK-wide lockdown has forced many companies to shut down their operations.

The industry’s reputation has taken a beating after insurers were quick to say that the majority of BI policies do not cover Covid-19. This has resulted in furious policyholders threatening to take legal action against a number of providers.

The most troubled provider so far is Hiscox, after a consortium of UK companies banded together and accused the insurer of wrongly denying BI claims.

Main target
The provider has been subject to multiple other accusations, including from TV chef Raymond Blanc as well as the Night Time Industries Association (NTIA).

Broker NDML, part of Romero Group, provides services to NTIA. MD Simon Mabb said that Hiscox was likely to be the main target but added that QBE’s wordings were also under review along with other providers.

Mabb commented: “As brokers, we are working with NTIA and Philip Kolvin QC in representing our clients in pursuing their claims for business interruption losses due to the Covid-19 lockdown. We are exploring every possible avenue to get insurers moving and paying legitimate claims to their clients.”

He called on insurers to do the right thing, adding: “Now is the time to work together. Not to find loopholes and re-write wordings that exclude claims. But to stand by the clients that have stood by you for so many years, to recognise that loyalty. And to save our industry.”

Hiscox has insisted that its exposure to Covid-19 is limited and that it is paying valid claims.

If any insurance policy reads to the ordinary, typical policyholder as though it covers the circumstances of the lockdown then from an ethical and good faith point of view you could argue that they should pay the claims

Roger Flaxman

Legal action
In addition, a group of around 40 businesses in the childcare provision sector is mulling legal action against RSA after buying policies underwritten by the provider through the Early Years Alliance.

Simon Sloane, partner, dispute resolution, at Fieldfisher, explained that the policy extensions provided by the Alliance had “favourable coverage terms” in relation to the pandemic.

He explained that BI policies would only respond to coronavirus if there was an appropriate extension, adding: “The specific language of each extension would also depend on whether there’s cover to respond to these specific incidents – presence of a notifiable disease or closure due to public order.”

Aaron Le Marquer, a partner at Fenchurch Law, agreed that some policy wordings were drafted in a way that makes it look like they do extend to cover the present circumstances.

“It might not have been what was front of the mind of the underwriter that drafted the policy wording but that doesn’t mean that the words used to draft the wording don’t cover the losses that are now being suffered,” he explained.

He urged insurers to look at each claim individually to see if policyholders are covered or not, adding that he was surprised by the blanket denials of coverage issued by many insurers.

Making the case
Meanwhile, Roger Flaxman, executive chairman at Flaxmans, noted that he could not predict whether the various action groups will have a case or not.

“It depends largely on the how the claims are made and whether the intention of the contract will hold any sway with the court,” he added.

According to Flaxman, courts would normally interpret the ordinary meaning of the words in the policy as they stand.

He continued: “If any insurance policy reads to the ordinary, typical policyholder as though it covers the circumstances of the lockdown then from an ethical and good faith point of view you could argue that they should pay the claims.

“On the other hand, from the standpoint of the law of contract it might be that the law gives insurers enough protection to say that the words are the words and that’s as far as we’re going to go.”

Meanwhile, Jonathan Compton, partner at DMH Stallard, stated that the question that insurers need to ask themselves is why they are coming in for such a hammering and whether it is deserved.

He continued: “Clearly they are being criticised because they are not paying out on claims brought by the small business sector.

“Sadly, all insurers have to do, in most instances, is to wait. Many of the businesses in trouble will be wound up. At this point, the claim against the insurer is in the hands of a liquidator – usually – who will have limited funds to pursue the claim.”

But insurers are not the only ones at risk. Lawyers warned that brokers could also face legal action from disgruntled customers.

As brokers we’re the frontline for policy holders and, until insurers confirm their position, most of us are in the dark

Ashwin Mistry

Broker backlash
Le Marquer explained though that while brokers often find themselves in the firing line because they are “easy targets”, in 90% of cases there is no legal basis for those claims.

“They’re just seen as an additional pot of money to go after,” he continued. “At present where insurers are taking a very hard line approach it’s hard to see how you can lay any blame for that at the broker’s door.

“It’s not any one broker’s relationship with the insurer that has influenced the situation – all the brokers are facing the same situation where insurers are refusing to pay claims.”

In mid-April a number of providers confirmed they had looked over their policy wordings in response to the crisis, with several introducing total exclusions for Covid-19.

Prior to this many brokers had slammed insurers for not providing them with clarity around what is covered, and the move to exclude coronavirus did not come as a surprise.

“Insurers are busily bolting that stable door as closed as they can, if they didn’t they’d be negligent,” said Howard Lickens, CEO of Clear Group.

He accepted that “not many people will have sympathy for insurers”, but argued that it would be impossible for the sector to cover the losses.

“This is fundamentally uninsurable and I’m sure the insurance world will come into a lot of criticism for it, but it’s just way too big,” Lickens added.

Brokerbility chairman Ashwin Mistry reluctantly agreed. “It’s not good for us, but brokers have been seeking clarity and it’s these ambiguous wordings or interpretations that have caused the anxiety amongst the public and with brokers in particular,” he continued.

According to Mistry, some providers have “gone radio silent” leading to confusion for both brokers and customers.

“As brokers we’re the frontline for policy holders and, until insurers confirm their position, most of us are in the dark,” he added.

“It’s been well documented that some wording is loose and insurers have to now live up to their promise to pay, which is what insurance is about. Utmost good faith is now being tested.”

Reputational risk
Stephen Catlin, chairman and CEO of Convex, noted that he was worried about the industry’s reputation after the avalanche of criticism it
has received since the outbreak started.

The Association of British Insurers (ABI) was attacked for the tone of its messaging when it clarified that the vast majority of businesses will not be covered for BI.

“The most unfortunate thing has been communications that have not been thought through properly,” Catlin told Insurance Age.

“A lack of sympathy to the policyholders and the predicaments in which they find themselves is, at best, unfortunate.

“We need to repair that and recognise that the whole world is under duress and so are individual policyholders.”

Finally, Paul Beck, MD at Direct Insurance Corporate Risks, argued that there should have been a clear message sent out to the wider public stating that most BI policies do not and never have covered coronavirus.

In Beck’s view the government should have helped the sector out with conveying this message. He added that now there will be people “badmouthing the industry” for not paying out.

“You’re better off coming out and saying that insurance companies never covered this, never planned to, never could,” Beck concluded. “Insurance companies going bust doesn’t help the public any more than it helps us.”