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Insurers’ refusal to compensate businesses interrupted by COVID-19 could be unlawful

Thousands of businesses across the UK who have lost revenue due to coronavirus have looked to their insurance policies to help recoup some of their losses. But, so far, the majority have been told by insurers their business interruption cover is unlikely to extend to COVID-19 related claims.

If you have been denied a business interruption claim, one route to consider could be a taking your case to the Financial Ombudsman Service. Our dispute resolution partner Michael Key is currently advising a client who wants to challenge a decision which saw their business interruption claim rejected.

We asked Michael for his advice for companies who find themselves in this position:

‘Many companies who took out insurance policies that they expected to cover business interruption caused by the COVID-19 pandemic have been disappointed by their insurers’ rejections.

The acceptance or refusal of cover is specific to the policy terms themselves and it’s worth taking advice if your claim has been refused. As long as your business is eligible for help, (ie qualifies as a small or medium-sized business, charity or trust) it may be possible for you to take your complaint regarding refusal to the Financial Ombudsman Service, or if necessary, pursue a claim through the courts if cover has unlawfully been avoided.

I understand that the majority of business owners will have their attention focused on operations right now, but I recommend keeping accurate financial records of any business disturbance caused. This means that even if your insurance claim is rejected at first, you will have a record of the relevant information for any future challenge.’

Small businesses across all industry sectors - from hospitality to dentistry - are trying to claim on policies because of the interruption to their businesses caused by the lockdown. Most policies will not pay out because cover applies only if business property is damaged, but some are not clearly worded. Several insurers have been accused of wriggling out of their obligations.

The Financial Conduct Authority plans ‘to bring relevant cases to court as soon as possible for an authoritative declaratory judgement regarding the meaning and effect of some [business interruption] insurance policy wordings.’ They have now identified 17 policy wordings and 16 insurance firms which used those wordings. A test case is expected to be brought this July, and affected policies and insurers will be notified shortly.

If your small or medium-sized business has had an insurance claim rejected, but you believe you have a case,  you can get in touch with us for legal advice that could make all the difference.


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