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Coronavirus & BUSINESS INTERRUPTION INSURANCE: can other claims be made when cover is rejected?

Some business owners are finding claims on business interruption insurance are being rejected. Might they have a claim against the insurance broker? Or other parties?

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Published 16 April 2020

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Business owners who thought that they had cover for the business interruption caused by COVID-19 are finding in many cases that the cover is not what they expected and their claims are being rejected by their insurer.  You may wish to also read our guide to claims under business interruption insurance policies.

Do You have a claim against your insurance broker?  

It may be that if your business interruption insurance does not cover you for the consequences of the COVID-19 outbreak, you can make a claim against your insurance broker.  Each individual case will be different and will depend on the facts of the particular case.

Insurance brokers normally act as the agent of the policyholder (although usually paid by the insurer). They are regulated by the Financial Conduct Authority and are subject to the Financial Services and Markets Act 2000 and the Insurance Conduct of Business Source Book.  They are required to have “reasonable competence” (that is to perform to the standard of a competent insurance broker) and they have a duty to you of “reasonable skill and care”.  Their duties to you arise from law, regulation and from any contract you have with them. It is common for insurance brokers to act on behalf of the policyholder without there being a written contract, however in those circumstances the terms of the contract, and the duties owed by the broker to you, will be implied by law.

Their duties to you can include;

  • ascertaining your insurance needs
  • advising you about them.
  • advising you on the cover available
  • arranging the insurance cover as agreed with you
  • explaining the nature of the cover
  • advising you on the limitations of cover
  • advising you on the material information that needs to be provided to the insurer

These broker obligations arise both when you obtain the policy and when the policy is later renewed.  On renewal they should, for instance, review your needs and the extent to which they may have altered.

Failure to comply with the above duties may mean that a claim for losses can be made against the broker.

Brokers may also be open to claims if they advise you against, or fail to carry out on your behalf, a precautionary notification of your business interruption claims to insurers, or otherwise mishandle the claims process. Claims against brokers can arise where the broker has thought that you do not have cover but it has later transpired that this was incorrect and that you have lost the opportunity of making the claim because you are outside the time limits. Brokers sometimes say that they have to strike a balance in these circumstances, feeling (rightly or wrongly) that they do not want to notify the insurer of potential claims unnecessarily, in case doing so might lead to an increase in premium on renewal.

Additionally, claims can arise simply because the broker attempted to notify the insurer of a claim on your behalf but did not do so in the correct way.

Are there claims against companies and directors?

It remains to be seen whether claims against companies or their directors or other officers can be made by shareholders alleging that the company failed to acquire adequate business interruption cover (or indeed failed to adequately prepare in other respects to meet the effects of a pandemic or to adequately react to it).

Companies (or liquidators or administrators acting for insolvent companies) could potentially make claims against the companies’ directors for similar alleged failings, which might bring into play any Directors and Officers (D&O) insurance cover that the directors have.

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Shorter Reads

Coronavirus & BUSINESS INTERRUPTION INSURANCE: can other claims be made when cover is rejected?

Some business owners are finding claims on business interruption insurance are being rejected. Might they have a claim against the insurance broker? Or other parties?

Published 16 April 2020

Associated sectors / services

Authors

Business owners who thought that they had cover for the business interruption caused by COVID-19 are finding in many cases that the cover is not what they expected and their claims are being rejected by their insurer.  You may wish to also read our guide to claims under business interruption insurance policies.

Do You have a claim against your insurance broker?  

It may be that if your business interruption insurance does not cover you for the consequences of the COVID-19 outbreak, you can make a claim against your insurance broker.  Each individual case will be different and will depend on the facts of the particular case.

Insurance brokers normally act as the agent of the policyholder (although usually paid by the insurer). They are regulated by the Financial Conduct Authority and are subject to the Financial Services and Markets Act 2000 and the Insurance Conduct of Business Source Book.  They are required to have “reasonable competence” (that is to perform to the standard of a competent insurance broker) and they have a duty to you of “reasonable skill and care”.  Their duties to you arise from law, regulation and from any contract you have with them. It is common for insurance brokers to act on behalf of the policyholder without there being a written contract, however in those circumstances the terms of the contract, and the duties owed by the broker to you, will be implied by law.

Their duties to you can include;

  • ascertaining your insurance needs
  • advising you about them.
  • advising you on the cover available
  • arranging the insurance cover as agreed with you
  • explaining the nature of the cover
  • advising you on the limitations of cover
  • advising you on the material information that needs to be provided to the insurer

These broker obligations arise both when you obtain the policy and when the policy is later renewed.  On renewal they should, for instance, review your needs and the extent to which they may have altered.

Failure to comply with the above duties may mean that a claim for losses can be made against the broker.

Brokers may also be open to claims if they advise you against, or fail to carry out on your behalf, a precautionary notification of your business interruption claims to insurers, or otherwise mishandle the claims process. Claims against brokers can arise where the broker has thought that you do not have cover but it has later transpired that this was incorrect and that you have lost the opportunity of making the claim because you are outside the time limits. Brokers sometimes say that they have to strike a balance in these circumstances, feeling (rightly or wrongly) that they do not want to notify the insurer of potential claims unnecessarily, in case doing so might lead to an increase in premium on renewal.

Additionally, claims can arise simply because the broker attempted to notify the insurer of a claim on your behalf but did not do so in the correct way.

Are there claims against companies and directors?

It remains to be seen whether claims against companies or their directors or other officers can be made by shareholders alleging that the company failed to acquire adequate business interruption cover (or indeed failed to adequately prepare in other respects to meet the effects of a pandemic or to adequately react to it).

Companies (or liquidators or administrators acting for insolvent companies) could potentially make claims against the companies’ directors for similar alleged failings, which might bring into play any Directors and Officers (D&O) insurance cover that the directors have.

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