COVID-19: Insurance cover and the current pandemic

By Robert Parks (Robert.parks@irwinmitchell.com)

Businesses are being significantly impacted by the current pandemic with offices being shut, staff working from home and events and travel cancelled. They will be looking to see whether their insurance policies cover them for the loss which they are suffering. Insurers, on the other hand, are likely to be taking a robust approach in seeking to argue, where possible, that any loss falls outside the scope of those policies.

In this article we set out some general tips for businesses when considering whether they are covered for losses arising from the Covid-19 pandemic, as well as considering whether they may have claims against their insurance brokers if cover is declined.

1. Read your policies carefully

The starting point will always be the wording of the policy. Businesses should read their policies carefully, including any exclusion clauses, to see whether the loss which they are seeking to recover might fall within the scope of those policies.

2. Notify your insurer as soon as you think might have a claim 

Check the notification clause within the policy to see how long you have to notify your insurer of a potential claim. To be safe, you should notify your insurer as soon as you think you might have a claim to avoid any risk of cover being declined for delay in making a notification.

3. Review guidance from the Financial Conduct Authority

Businesses should be aware of the statements and guidance the Financial Conduct Authority (“FCA”) has been providing since the start of the pandemic. These can be found on its website (ww.fca.org.uk). They include a direction which the FCA gave to insurers in April 2020 to assess and pay any claims for business interruption as promptly as possible and to consider making interim payments to policyholders whilst the full value of a claim is being assessed. Where cover is declined, the FCA expects insurers to communicate clearly and sympathetically with policyholders at all times.

4. Consider whether it is appropriate to make a complaint to the Financial Ombudsman Service

Where the insurer disputes coverage, smaller businesses may want to consider whether to bring a complaint to the Financial Ombudsman Service (“FOS”) as an alternative, or prior, to commencing Court proceedings. A complaint to FOS will be cheaper and faster than proceeding straight to Court proceedings and FOS applies a broader test than the Court in determining complaints. If you are unhappy with the decision of FOS, you are not obliged to accept it in which case you can still take the matter to Court.

5. Which types of cover could be relevant?

Claims under numerous types of cover could arise as a result of the current pandemic. These may include claims under business interruption insurance, event and travel cancellation insurance, public and employers’ liability policies (if employees or customers bring claims against businesses for failing to take adequate measures to safeguard them from catching the virus, cyber liability insurance (given the increased risk of cyber attacks as a result of employees working remotely and directors’ and officers’ insurance (e.g. if shareholders are unhappy with the difficult financial decisions which directors may have to take in these extraordinary times).

Further information on issues which may arise when a business is making a claim to its insurers for loss arising in connection with the pandemic can be found in the article “Are you insured?-Business loss and Covid-19- The Key Questions” written last month by Katie Byrne and Ted Powell, members of our Commercial Dispute Resolution Team. Since that article was written, the FCA has indicated that it will be seeking a declaration from the Court as to the meaning and effect of some frequently used wording in business interruption insurance policies. It is currently hoping to obtain such a declaration by July 2020. This should provide businesses with policies containing that wording, or similar wording, with more certainty as to whether their business interruption insurance covers them.

6. If we are not insured, are we likely to have a claim against our broker? 

Where there is no dispute over an insurer’s decision to decline cover, a business may wish to consider whether it has any claims against its insurance broker. This could be, for example, for failing to advise it properly about available cover for infectious diseases at the time it took out its policy or, if the broker had an ongoing relationship with the business, for failing to advise about potential opportunities to renegotiate a policy or purchase additional insurance as the Covid-19 situation was developing.

There are likely to be some substantial hurdles which a business will need to overcome if it is to succeed in a claim against its broker. An initial hurdle will be in demonstrating that a reasonable broker would have taken more steps than the actual broker to advise the business about any additional cover which would have covered the business for the losses which it is now suffering as a result of the Covid-19 pandemic. This will not be easy given the unforeseen nature of this pandemic and the speed at which it has spread around the world. Even if that hurdle can be overcome, the business would still need to demonstrate that it would have been willing to pay the premium for this additional cover at the time. Going forwards, the FCA has made it clear that brokers should keep abreast of market developments and that they have a key role in helping their customers to understand the impact of Covid-19 on the insurance market and to search that market for products which meet their customers’ demands and needs. Claims may arise against brokers in the future if they fail to advise business clients properly about the possibility of obtaining further cover where there is a greater need for that cover given the pandemic (e.g. cyber liability insurance) or if the broker fails to advise clients properly about any policies which may still exist which would provide protection against future outbreaks of infectious disease.

 Katie Byrne and Stephanie Reeves, Senior Associates in our Commercial Dispute Resolution Team are hosting a webinar at 2pm on Thursday 21 May where they will be discussing the above issues in greater detail as well as claims against professional advisers, including insurance brokers, which may arise as a result of the current pandemic. If you are interested in attending, you can register by clicking here, and if you would like to submit questions to them, please send them to Katie.Byrne@irwinmitchell.com or Stephanie.Reeves@irwinmitchell.com