COVID-19 Business Interruption Insurance
28 May 2020
VIRUS SNIPETS and BUSINESS INTERRUPTION INSURANCE
Business interruption insurance is intended to cover your business from a reduction in revenue when you are unable to conduct business as normal due to an unexpected event. COVID-19 certainly amounts to an unexpected event and millions of businesses, of all sizes, have been unable to conduct their business, and indeed have been actively discouraged by the government from doing so, in the usual manner which for many will have resulted in a significant reduction in revenue for Q2 and quite possibly, beyond.
BI insurance is intended to protect your business from this shortfall but the reality for many, particularly SMEs, will be an unwillingness on the part of the insurers to pay out, and almost inevitably, a long and drawn out process if your claim is eventually upheld that will leave you increasingly frustrated.
Test case
Manigold v. Axa
A ruling at the end of last week by the Parisian Court found in favour of restaurant owner Stéphane Manigold who made a claim for business interruption with his insurer Axa after being forced to close his four restaurants for two months when the French capital went into lockdown.
Axa argued that whilst their insurance policy would have covered the closure of the restaurants by the authorities, it did not cover business disruption caused by a health crisis. However, the Court dismissed Axa’s argument and ordered them to pay an initial sum of €45,000 while a Court appointed expert assesses the extent of M. Manigold’s losses.
Despite saying initially that they would appeal the Court’s decision, Axa announced on Tuesday 26 May that they would meet the majority of claims. The case is already being hailed as a precedent that is quite likely to be followed in other jurisdictions including the UK and could have far-reaching consequences for the insurance world. In the UK, test cases and class action are already being prepared against Hiscox, Aviva and QBE.
The Insurance Industry’s Argument
BI insurance in relation to the hospitality industry is currently under the spotlight but it is not only the hospitality industry that has been significantly and adversely affected by the global pandemic.
With Huw Evans, Director General of the ABI, arguing that BI insurance is “not designed to cover an unspecified global, viral pandemic that is not present on the premises” and arguing that businesses require specific add-on coverage against pandemics, policy wording will be key for anyone hoping to claim BI insurance.
Group Litigation Orders
Class Action Lawsuits, or Group Litigation Orders (GLOs) are the best, and often the only, way to tackle the big insurers and other financial institutions and have grown in popularity since 2015. The High Court provides for three different options for bringing collective actions with option two likely to be of most relevance to anyone wishing to bring a claim against an insurance body:
Claims which can be “conveniently” disposed of in the same proceedings can either be brought jointly or consolidated, with the court exercising overall case management using its ordinary procedural rules
GLOs which provide for several claims where more than one claimant has a cause of action raising common or related issues of fact or law to be grouped together and managed using specific procedural rules
Representative actions
Section III of Part 19 of Civil Rules and Procedures and Practice Direction 19b layout the framework under which GLOs can be brought before the Court and how they will proceed.
The benefits of participating in a GLO for a SME or individual is that by sharing knowledge, and risk, your argument can be strengthened if you can show that multiple groups have been affected by the same issues; in this instance a failure on the part of the insurers to settle BI claims. It will usually also be easier to obtain litigation funding and adverse costs indemnity cover on a group basis. Sharing your experience may help you to bring a case to Court.