Are you missing out on an insurance claim?

Catrin Povey, who leads Capital Law’s insurance practice, says coffee shops and cafes that have been impacted by the coronavirus should double-check their business interruption insurance policy and make a claim before it’s too late.

Business interruption insurance is intended to cover financial losses where business operations have been interrupted, because of unexpected events causing damage to the property insured. The coronavirus pandemic is definitely an unexpected event, and it has interrupted the operations of most businesses in the drink sector, including bars, which were forced to close due to sanitation and contamination concerns.

Yet, many in the hospitality sector have experienced difficulties in claiming and accessing business interruption insurance. That’s because most standard policies are designed to cover damage caused by fire, flooding, earthquakes etc and are unlikely to be triggered in the current circumstances. Even where policy extensions provide a wider scope of coverage, insurers are contesting that these were not intended to cover losses connected with pandemics.

While this push back from the insurance industry is inevitable, coffee shops should not automatically accept their insurer’s denial, or assume that they are not covered. Each policy is unique, so whether a claim is possible depends on the exact terms of the policy. Where the wording is ambiguous, the policy should be interpreted in favour of the insured. 

Some possible ways to make a claim
To limit exposure and contagion, the UK Government first advised the general public to avoid coffee shops, pubs, bars and restaurants on 16^th March, leading to forced closures on 20^th March. This forced closure may provide you with an opportunity to claim on your policy through numerous extensions – such as public emergency, government or local authority action, or denial of access.

If a confirmed case of COVID-19 has been found on (or within a certain perimeter of, depending on the wording) your premises after the virus was officially recognised as a notifiable disease (on 22^nd  February in Scotland, 29^th  February in Northern Ireland, 5^th March in England, and 6^th  March in Wales), you may be able to make a claim if your policy includes a notifiable disease extension.

This extension was designed to cover situations where premises have been contaminated, or at risk of being contaminated by a highly contagious disease and have been forced to close as a result. It may be linked to a specific list of notifiable diseases not including COVID-19 – which was obviously unknown at the time the policy was drafted. In this scenario the insurer is likely to refuse cover on this basis, but you could argue that in most cases, it hasn’t been specifically excluded from the policy either.

These examples are not exhaustive, as each establishment is in a different situation and each policy is unique. One thing is common though – you will always need to prove a link between whichever clause you rely on and your loss of trade.

Next steps to prepare a claim
You should contact your business interruption insurer as soon as possible. You can do this directly, or via your broker if you have one, and find out whether they will provide cover. Insurers will want to help as much as possible so be up-front about your present position.

You should also start preparing your claim now. This means keeping a note of key events, such as when you closed, details of your current operations (for example, if and when you started offering take-aways and how much income this has generated), details of any people who had Covid-19 while on the premises, plus anything else you consider relevant to the claim. 

You should check your policy for specific conditions on unoccupancy or vacancy and ensure that you are complying with these conditions as far as possible. Typical unoccupancy conditions may include a condition to check your premises once a week and keep a log of inspections. Insurers are likely to be flexible on some of these conditions given the current situation, but such flexibility will likely only apply if you can show that you are attempting to mitigate the risk.

If your claim has been rejected and you think it’s unfair, seek advice from professionals who can help you review your policy, put your case forward and write to your insurer to explain why you ought to be covered. If the claim is still rejected and your insurer issues their final response, you can either complain to the Financial Services Ombudsman (FOS), or take legal action.

Either way, now is the time to act, as most policies set out claims conditions requiring policyholders to notify them of an event “immediately”.

For more information or if you’re looking for legal advice, contact Capital Law at the Cardiff office 029 2047 4400 or the London office 0333 2400 489 or via email [email protected].