What business interruption test case means for policyholders

Insurance policyholders who have been refused a coronavirus-related business interruption (BI) claim should have their policy wording checked to see how it is affected by the outcome of a recent test case.

Judgment was handed down on Monday (14 September) in the case, which considered whether a range of policy wordings would be triggered by the effects of the coronavirus pandemic.

The case was fast-tracked because of its urgency, with many diversified farm businesses and others severely affected by the repercussions of the pandemic and a high proportion having had their claims rejected.

See also: Payouts likely following business interruption insurance judgment

Twenty-one different sample policy wordings used by eight insurers were examined to establish whether claims should be paid.

Free wording checks

Law firm Mishcon de Reya is acting for two main policyholder action groups. Partner Richard Leedham said that some firms, including Mishcon, offered a free initial check of policy wordings.

He added that insurers should make interim payments as a result of the judgment and that policyholders should be pushing for these payments.

Richard Moore, a partner with law firm Clarke Willmott, advised policyholders to double-check with their broker that their original claims have actually been sent to their insurers.

Assessing losses

The judgment confirmed that the correct approach for assessing loss is to look at where the business would have been had the pandemic not happened.

However, quantifying the losses caused by any coronavirus-related business interruption may not be straightforward, said Paul Smethurst, a partner at accountant Menzies.

“As well as considering any obvious loss of profits based on a comparison with normal trading activity, they [claimants] should consider any contracts that were lost, or failed to convert, due to the lockdown restrictions,” he said.

“Businesses may have received enquiries that they were unable to fulfil, or respond to within the required timeframe, and these projected losses should also be taken into account.

“Some businesses in the hospitality and leisure industry, such as pubs and restaurants, could lose out on quantity discounts that they might have expected to earn under normal circumstances.

Keep detailed records in case of more lockdowns 

“With the prospect of more local lockdowns in the months ahead, businesses must continue to keep detailed records of their commercial dealings in a format that could assist them in bringing further claims in a timely way in future,” Mr Smethurst said.