SMEs face legal threats from same insurers that are not paying out on their BI policies

Beaconside House
Beaconside House

Exclusive: Insurers seeking to recoup losses from other classes, such as event cancellation and wedding insurance, are threatening policyholders involved in business interruption group actions against them with legal action.

Allianz, Axa, Ecclesiastical, Hiscox, MS Amlin, QBE, RSA and Zurich have all been named among potential group action targets.

While the Financial Conduct Authority has pledged to take some of the most common policy wordings to the courts to break the stalemate, Post can reveal that in the meantime insurers have been attempting to recoup losses from other classes of business by demanding payments from businesses, some of which are among those threatening to take them to court.

In some cases, as is the case with RSA policyholder Beaconside House, which bought its BI insurance through the Gallagher-brokered Cottagesure scheme, the insurers are demanding sums from businesses that are trying to claim BI pay outs specifically from them.

Simon Sloane, Fieldfisher partner advising Cottagesure policyholders, said he had heard “similar stories”.

“I’m not sure RSA is alone,” Sloane added.

He continued: “Event insurance normally would have a virus or pandemic exclusion, so it wouldn’t pick it up. But if somebody has a contract for an event such as a wedding, and they paid for it with a credit card, when the venue can’t be provided your credit insurer pays out and seeks to subrogate that claim against the venue owner.”

“It is an unfortunate irony that RSA is suing one of its own policyholders where it has failed to pay out the event owner’s claim,” Sloane said of the Beaconside House case.

‘Frustrated contract’

Beaconside House, a wedding venue in Devon, was sent a “threatening” letter by RSA Group’s John Lewis Insurance, which demanded £14,000 in payment and required confirmation that it would pay up within seven days due to a ‘frustrated contract’.

The RSA letter, seen by Post, stated: “It is our intention to instruct solicitors to recover damages arising from frustration and non-performance and we will proceed with this if we do not receive a positive response from you within seven days.”

According to the insurer’s letter: “We understand because of government restrictions banning weddings you are unable to provide the services within your contract with [policyholder name] and an alternative mutually acceptable option is unavailable.

“The contract has been frustrated because, after conclusion of terms, events occur which make performance of the contract impossible, illegal, or something radically different from that which was in the contemplation of the parties at the time they entered the contract. A contract that is frustrated is brought to an end automatically irrespective of the wishes of the parties.”

The RSA letter went on to cite the Consumer Rights Act (2015) and the Unfair Terms in Consumer Contracts Regulation (1999), adding that weddings and events venue have previously been warned on unfair cancellation terms by the Competitions and Markets Authority.

Beaconside

Mark Singer runs Beaconside House and received the letter. He described RSA’s handling of the situation as “just unbelievable,” particularly given that the Cottagesure group of policyholders allege that broker Gallagher had told them they should expect to be paid by RSA for coronavirus disruption via their BI policies.

Beaconside House
Beaconside House, pictured before the coronavirus pandemic

“Talk about having your cake and eating it,” Singer said of the insurer.

He continued: “We were all sitting tight and hoping that by the [business interruption] insurance paying out we can kick start things and also help all the brides that have been booked this year. They’re trying to sort themselves out for next year and so on.

“And then lo and behold, a couple of our brides who have got themselves wedding insurance through John Lewis, underwritten by RSA, have been told that their claim is being processed and that’s all they know. And then this this arrives on my desk.”

The venue could face further letters from RSA, Singer said, as the weekend wedding specialist venue has a further 11 brides and grooms booked in for the year who are insured through the John Lewis brand.

Singer continued: “This couple are looking to recoup £14,000 and we’ve done our best to accommodate them with alternative dates. They are really reasonable and they’re hopefully going to either look at that or, or somewhere else, but they’ve been really amicable with us. I’m reasonable, but they’re waiting to find out what their insurance company says.

“I just don’t understand on what grounds RSA can possibly send them through. I mean, legitimately how they can sue us for frustration of a contract when I’ve not even got a contract with them. The contract is with the couple. It seems like an effort to get some money back and it is just not prepared to pay out either.”

RSA response

RSA provided Post with this statement: “Regulators have been clear that venues are expected to refund or rebook couples whose weddings have been affected by coronavirus, however we recognise that our processes and communications need to take in account the pressures businesses are facing. In light of this, we are reviewing our processes to ensure they reflect the sensitivities of the current circumstances. If venues are having difficulty refunding their customers, we urge them to contact us to discuss the options so we can find a solution together.”

It is understood that the insurer’s standard process is to first contact the venue to discuss their stance and refund or re-arrangement options in the event of a claim before sending a standard legal letter. However, in Beaconside’s case this process does not appear to have been followed.

The insurer will now review its processes, the wording and timeframe contained in these letters and where businesses cannot meet specified criteria they are encouraged to contact the insurer.

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