26 May 2022

Opinion from Adrian Leopard & Co

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Following successful court case, insurance companies still reluctant to pay out on Covid-19 business interruption claims
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Following successful court case, insurance companies still reluctant to pay out on Covid-19 business interruption claims

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It is not unknown for a party to win a case but still feel he has lost it. Covid-19 business interruption claims must surely fall into that category

It is a real blow for some hoteliers and other hospitality operators but although there were insurance claims for business interruption, insurance companies fell over themselves to avoid making payouts, claiming that the cover did not extend to such exceptional circumstances or that the wording did not cover the present situation etc.

The FCA decided that these decisions should be contested and took the matter to court. Eventually after the Supreme Court held that in many instances the clauses were valid, many businesses hoped that matters would be sorted out quickly and that payments would be forthcoming. Sadly, such is not generally the case and there is a general feeling that insurance companies are still trying to avoid liability, now by finding other nit-picking points within the wording which continue to exclude liability or, quite simply, by just stone-walling their insured clients.

Some of these businesses have already gone into insolvency or closed and others may yet have to do so before they receive the payout to which they are entitled. As we know the hospitality industry is on the cusp on collapse with so many businesses not having the financial reserves to get them through the lockdowns.

Business interruption insurance is notoriously difficult to claim on because of course the entire basis of the claim is speculative – you are having to prove to your insurance company that your business would have operated at a given level of profitability but for the event or events which brought about the interruption. Your insurer has to do nothing to help you – it is down to you and your professional advisers, in particular your accountants.

It can be done and indeed is done but these claims are usually dealt with as “one-offs” because a single business has suffered an event which has closed it down in full or in part for a period of time.

Of course there is then the added difficulty to overcome that an interruption which is so widespread may be deemed to be “the norm” and give an insurer yet another nail to hammer into your financial coffin. How might this be viewed today? Let’s say that all hotels are allowed to re-open because the risk has dropped sufficiently. When would you be able to argue that business had returned to “normal”? New normal may be that turnovers of businesses will be down generally by a percentage for the next five years because economic confidence has to return. So if your newly opened hotel now has a fire, how are you going to persuade an insurer to indemnify on what would have been if Covid-19 had not taken its toll?

A further problem is that such insurance cover is generally limited to one or may be two years; it’s called the “period of indemnity”.  – it gets very expensive if you try and insure for longer periods and in any general interruption events are things like fires, vehicles crashing into your premises and events which can be recovered from within a reasonable time. With a pandemic we could be looking at a complete sea change in how the public operate; we all know that vaccination or not, covid-19 is going to be with us, probably, for ever and what we are hoping for is that there will be sufficient herd immunity for the risk to people to be very low in the future, rather like with flu.

Put the boot on the other foot and imagine you are the insurance industry. The cost of meeting all of these claims if they are agreed and met in full could be absolutely crippling. Insurance companies have to maintain extremely high levels of reserves and this is done by way usually of triennial valuations of potential claims but the chances of such reserves having been built up because someone had a pandemic in mind – well your guess is every bit as good as mine. Whatever it may have been, that will now change because this could be just the first such disease to ravage society – who knows? Perhaps insurance companies will retaliate by simply refusing to insure for such risks any more – after all you cannot force them to do so.

It will not be easy sorting these problems out; if you are one of those who thinks he had cover, keep your head and make sure you are properly advised. The insurance should pay for the fees of the advisers assisting with calculating your losses and if you get a good adviser, he will fight for you to get the best result. What is more is that insurance claims are frequently settled as a result of mediation.

Adrian Leopard 03-02-21

Photo Daniel Tausis

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Adrian Leopard & Company is the trading name of Alderney Offshore Ltd, a company registered in Alderney, Channel Islands number 1220.

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Registered Office Seldomin, Longis Road, Alderney GY9 3YB.

Adrian Leopard & Co is represented in the UK by 3CL (UK) Ltd trading as Adrian Leopard Associates.

Telephone enquiries may be made on 08449-4-08449 or 01684-230360.

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