Analysis: Business interruption after Salisbury: Poisoned policies?

Salisbury

  • Denial of access BI cover usually requires a one-mile vicinity to the incident
  • 12-month indemnity periods are too short, especially when chemical decontamination takes six months

The fallout of the suspected attempted chemical murder in Salisbury has exposed the intricacies of business interruption policies

If James Bond was both incompetent and Russian, he might have pulled off something like the Novichok poisoning in Salisbury in March this year. He isn’t and he didn’t, but someone did and by all accounts, they made a real hash of it.

Not only did the perpetrators fail to kill their intended target, former Russian secret service agent Sergei Skripal, the nerve agent spread far beyond the confines of the Skripal home and across the centre of Salisbury and beyond to the nearby town of Amesbury, claiming the life of Dawn Sturgess.

As a covert assassination, it was an unmitigated failure. But the impact on Salisbury, in particular, has been profound. Estimates suggest that footfall at Salisbury Cathedral, the main attraction, fell by 40% in the week after the incident and was still down 20% by August.

And as is often the case with major incidents, the insurance industry found itself firmly in the spotlight.

A mixed bag

In October, Alistair Cunningham, corporate director for growth, investment and place at Wiltshire Council, said he had experienced a “mixed bag” in terms of insurer response and called on insurance companies to be held “to the highest standards”.

This kind of rhetoric is new but what exactly has the insurer response been?

Laura Hughes, senior policy adviser for property insurance at the Association of British Insurers, says that although it is difficult for the industry to apply a blanket approach to claims, “insurers have responded sympathetically”.

“It is for individual insurers to make their own decisions regarding ex gratia payments if the required cover is not in place,” she adds.

This view is supported by those on the ground, including Damian Glynn, director and head of financial risks at loss adjusting firm Sedgwick.

He says that even if insurers are paying on an ex gratia basis, the incident brings up an important legal point that needs to be addressed.

“I can tell you there are claims being paid but there are some policies that are not responding for technically correct reasons,” he says.

“The claims were submitted to me as non-damage business interruption but standard denial of access requires damage in the vicinity. The Skripal house is about 1.5 miles from the city centre and a lot of policies define ‘vicinity’ as a mile,” he explains.

As such, he explains that business owners affected by the contamination in the centre of Salisbury would not technically be covered as Sergei Skripal and his daughter Yulia became, in effect, the incident and the damage goes far beyond what commercial policies are designed to cover.

But Glynn takes a pragmatic rather than technical approach: “Anyone saying that is not damage needs their head looking at but we do need to consider what is in the policy.”

This is the crux of the issue. Glynn points out that only nine properties were directly affected by contamination – the rest of the claims concerned denial of access and there has been a suggestion that there should be some cover for the consequent drop in footfall.

Although he is confident that the denial of access claims should be covered, he is not convinced by some claims that the incident has exposed a gap in BI policies.

“I don’t understand what gap people are talking about,” he says. “If you assume the downturn in Salisbury should be covered, you create the expectation that everything should be covered. The general depression in economy is not covered.”

The economic question aside, are the BI aspects of commercial policies able to respond adequately to this incident?

Angus Tucker, managing director of loss adjuster Lorega Solutions, says he is seeing a lot of BI extensions appearing in policies for denial of access, particularly non-damage denial of access cover. He believes that if affected businesses have these covers, they should be able to claim.

“Denial of access is a standard extension in about 99% of policies and non-damage BI cover we see in more than 50% of policies,” he says.

But the fact that the Skripals brought the ‘damage’ with them from the affected property muddies the waters somewhat.

Tucker says he would try to argue the case that the damage aspect applies even though the Skripal property was not technically in the vicinity of the affected businesses.

“However, the insurer could quite legally argue that until there is actual damage to the property, it won’t apply,” he explains.

Gap in cover

This takes us back to the idea that the Salisbury incident has exposed a gap in cover but ultimately, it would appear that the only real gap is in whether businesses have adequate BI cover or not.

According to Bryan Banbury, managing director of Nottingham-based broker Russell Scanlan, the increase in frequency and variety of terrorist attacks in recent years has brought the need for BI cover up the agenda.

“These types of events have changed the BI conversation and policies are getting there with the emerging threats,” he says. “Non-damage BI policies are still evolving but they are pretty good.”

However, simply having BI cover is not enough to offer the protection businesses in a situation similar to Salisbury will need. For some, it took six months to decontaminate the property and only then could owners return, often just the first step to getting the business back up and running.

As Tucker says: “I wish we could outlaw 12-month indemnity periods as they are just not long enough, but we see that level of cover in about 50% of policies.”

So although the Salisbury attack was a hopefully a unique set of circumstances, it appears that even when policies don’t technically respond, common sense and pragmatism have been applied and there are few who see the necessity for re-writing policies on the back of it.

But what it has done, in conjunction with last year’s terrorist incidents, is raise awareness among the business community of the need for adequate BI cover. In short, the incident itself was exceptional but the insurance solution is rather more mundane.

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