Coronavirus: Law firm proposes group action on denied insurance claims

Farmers who have had a business interruption claim for a diversification denied by their insurer during the coronavirus pandemic may be able to challenge this by taking part in a group action.

Law firm Michelmores is inviting expressions of interest from those who have had business interruption claims declined by one of eight insurance groups, including Britain’s biggest rural insurer, NFU Mutual.

Garbhan Shanks, the head of Michelmores’ policyholder insurance team, said the sort of farming businesses that might have been affected were those with diversifications, such as farm attractions, wedding venues and holiday accommodation.

See also: How diversified businesses are coping with lockdown 

“The coronavirus pandemic has adversely affected numerous businesses across the United Kingdom,” he said.

“Some have specific policy clauses such as non-damage property business interruption or disease extension wording which should cover business interruption losses, yet the insurers who offered this are denying claims.

“We are considering launching a series of targeted group actions, with the aim of helping policyholders to receive the indemnity funds that they may be entitled to.”

Non-damage clauses

Mr Shanks said most traditional property insurance products required damage to property before triggering a business interruption claim, so in these cases insurers would not be obliged to pay out in relation to the coronavirus pandemic.

However, where policyholders had non-damage business interruption cover, or cover which extended to a notifiable disease, there were policies from a number of insurers where the wording should mean they were obliged to pay out, he said.

It is estimated that this may be the case for about 10% of policyholders.

“Our clear view, having reviewed lots and lots of different policies, is that the policies we have identified are the ones where we believe that Covid-19 should trigger an indemnity towards these policyholders,” he said.

“We’re pretty confident on the basis of the wording that these policies should be responding.”

Mr Shanks added: “There are now situations where some insurers have made a decision to pay out in full, whereas other insurers with the exact same clause are deciding not to pay out. There is a disconnect.”

An NFU Mutual spokesperson said: “In line with UK market practice, our standard business interruption cover usually requires damage to property, such as storms or fires, in order to be triggered, which means the majority of customers will not be covered for coronavirus.   

“There is an extension available for human diseases which some customers may have taken up. That provides cover if premises need to close or their use is restricted as a result of a specified list of diseases in the customer’s policy document. Coronavirus is not included on that list.

“We use this approach of naming individual diseases rather than referring to notifiable diseases to ensure that customers are clear about the level of cover being purchased. In line with most other insurers, when Covid-19 was added to the government’s list of notifiable diseases, this did not change policy coverage.”

FCA test case for clarity

The Financial Conduct Authority (FCA) has launched a test case in a bid to get legal clarity on business interruption cover where there is uncertainty. It has decided not to include NFU Mutual in this action. 

The FCA announced on Monday (1 June) that it had reviewed more than 500 policies from more than 40 insurers and identified a sample of 17 policy wordings that captured the majority of cases in dispute.

A five- to 10-day High Court hearing is scheduled for the second half of July.

“We are seeking a judgment that will help policyholders and insurers have a much clearer of which business interruption policies respond to the pandemic and those that don’t,” an FCA update said.

“Therefore, the court may well decide a number of these policies respond to the pandemic and others do not.”

How to get involved in a potential group action

Businesses interested in finding out more are invited to register their interest with the Michelmores team at and provide the name of the policy holder, the name of the insurer and a copy of the insurance policy if available. All information provided will be kept confidential.

Group actions can be structured in different ways. In some instances, claimants will individually contribute a small fee, with this pot of money used to pursue the case. In other cases, a third-party litigation funder may pay all legal costs in return for a share of any damages awarded.

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