Blog: Coronavirus business interruption insurance – devil is in the detail for Hiscox and others

Coronavirus

Most businesses will not be insured for Covid-19 disruption and in many cases the wording is clear cut. But for others, the devil is in the detail and policy wordings suggest that insurers should cough up vital interim payments sooner rather than later.

Hiscox, in particular, has grabbed the spotlight in recent days, as an action group threatened to take the insurer to court if it did not pay up for business interruption claims. It’s a blow for an insurer that prides itself on its reputation, as many in the industry have said.

Hiscox has contested arguments that it needs to pay its numerous insureds, which include celebrity chef Raymond Blanc. The insurer has said: “Like terrorism and flood risks, which have government-backed schemes, these types of events are simply too large and too systemic for private insurers to underwrite.”

Its policies, like those of the rest of the industry, were never intended to cover outbreaks like Covid-19, Hiscox has said, but the action group argues that intended or not, the wording of the policy speaks for itself.

While Hiscox has estimated it faces $175m (£139m) of potential losses in a “realistic disaster scenario”, these come from event cancellation, entertainment and travel business. However, behind the scenes there is an inkling that the insurer is worried, having briefed brokers earlier this month as exposure fears mounted according to an industry source. 

Here is an excerpt from the policy held by Media Zoo, media firm and a founding member of the now 135-strong Hiscox Action Group:

“We will insure for your financial loss resulting from an interruption to your activities caused by:

11) Public Authority      

“Your inability to use the insured premises due to restrictions imposed by a public authority during the period of insurance following:

b) an occurrence of any human infectious or human contagion disease, an outbreak of which must be notified to the local authority”.

When Mark Killick, a director at the firm, sent me the wording he told me:  “It’s obviously even more upsetting that at a time of crisis when you need insurers to step up to the plate, they instead turn tail and run coming up with stupid reasons why they aren’t paying out. For example, the disease isn’t with a mile of the office, the office isn’t really closed.”

Nick Pester, general counsel at insurtech Zego, has labelled Hiscox’s response “one of the weakest repudiations I’ve seen in 15 years specialising in coverage and policy wordings, where I acted for the market 95% of the time”.

Pester went on: “I’ve been told that Hiscox has taken legal advice on this, but, honestly, my genuine recommendation would be to obtain a second opinion. If this group seeks declaratory relief, they’re likely to win.”

And Pester isn’t the only one, though there is plenty of debate over whether or not Hiscox is in the clear here; as Post content director Jonathan Swift blogged recently, history is on the insurer’s side if we take a look back at previous class actions (assuming it comes to that).

I’m not surprised that Killick, and others, are more than frustrated and mulling legal action if need be, as they face up to potentially dire consequences for their businesses having paid higher premiums than other similar firms to secure what they believed was top cover.

Hiscox is not alone.

MS Amlin has caught flack in The Times for allegedly blaming government restrictions rather than the disease itself for business closures. In the case of Andrew Barnes’ Bure Valley Railway, it has also declined to pay out on 25 mile notifiable disease cover.

At time of writing I’m just off the phone with a club and bar owner in Salisbury, who says QBE is not paying out on its BI claim. The policy includes wording that covers for notifiable diseases within 25 miles.

The venue, The Chapel, “absolutely struggled through” the Novichok disruption two years ago, not seeing its BI policy pay out despite having a terrorism add-on, as the event was never classified as a terrorist incident, owner Amanda Newbery told me. Now it is faced with coronavirus closures.

I asked Newbery what she thought about what was happening in the US, where unlike in the UK some states are gearing up legislation that may force insurers to pay out retroactively on policies where coronavirus never was covered, a potential catastrophe-in-waiting for the industry. Newbery ‘s response: “That’s ridiculous. That’s unreasonable. But for the ones that are clear: let’s sort this out. Which ones have the right wording and which ones don’t, and let’s make interim payments to keep those businesses going.”

The Chapel is one of roughly 60 businesses whose broker NDML believes are owed payouts by QBE. The specialist broker is seeking legal advice after claims were declined. 

Some insurers, such as Aviva, have made it very clear they do not expect the wording of their policies to stretch to cover Covid-19 related BI losses. But the full situation continues to emerge. As of now it is unclear just how many of these specific worded policies have been sold.

At best for insurers, these are clumsily worded policies that don’t convey their intended meaning and leave policyholders questioning why they aren’t receiving their expected pay outs.

Somewhere in the middle they are a costly botch up that will see insurers pay out for something they had not intended to.

At worst, insurers will be seen as deliberately not paying out on policies that have been written to cover an event. Something unlikely to please the press, the public, or the regulator.

Brokers too may not come out of this unscathed; if policies do not live up to promises and expectations then they are liable to face the ire of their clients or, perhaps worse, their clients’ legal representatives.

At the start of this month I asked whether the banks, which don’t exactly have a glowing history of doing well by SMEs (as the regulator chastened last week), might emerge as the real financial services villains of the piece. But for now, particularly with the Prudential Regulatory Authority reportedly digging for firms’ BI exposure, unless insurers find the right solution here they will be sitting at the top of the pile.

You’ve been warned.

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