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Insurers and business interruptions

Does a pandemic qualify for business interruption insurance? It’s a question that hotels shouldn’t be asking themselves, but, rather, their insurance company. The Covid-19 pandemic has brought the hospitality industry to its knees. As hotels struggle to find their footing, filing a business interruption claim with their insurer could be an essential lifeline.

Business interruption insurance is not a new type of insurance policy. Before the world was turned upside down, this type of policy covered income lost in what could be considered a traditional natural disaster: a flood, hurricane, fire, earthquake or tornado, to name some — events that cause physical property damage.

But here’s the hitch: some insurers have been ready for such a pandemic and have rewritten their policy wordings accordingly. As KPMG points out in a recent report, most insurers “learned the lessons from the SARS outbreak of 2003” and instituted exclusion clauses geared toward epidemics and pandemics into most nonlife products, such as business interruption and travel insurance. Not all though is lost for policyholders; not all insurers had the foresight to exclude losses arising from pandemics. Many policies circulating in the market prior to Covid-19 did not exclude losses arising from pandemic type disasters.

However, despite a significant number of policies which should technically cover policyholders for losses arising from the pandemic, Insurers, somewhat unsurprisingly, have denied the vast majority of Business Interruption claims. Even for policies that clearly cover a pandemic, we have seen Insurers resort to a number of blanket arguments to reject claims. They contend that policies require physical loss or damage (the argument being that there is no “damage” incurred from a virus) or policies exclude certain losses caused by viruses.

The insurance industry’s almost blanket rejection of Business Interruption claims has triggered scores of lawsuits. Small business owners have understandably petitioned the courts to compel insurers to honour their agreements. In their recent judgement in Financial Conduct Authority v Arch Insurance (UK) Ltd and Ors [2021] UKSC 1 the Supreme Court made very clear that they expect insurers to pay out on claims where there is cover. So if you haven’t already made a claim, now is the time to do so.

What to do now about a claim

The directive is clear for hotels: File a claim with your insurance company — the sooner the better. Here are some tips.

  • Understand your policy

Read your policy carefully to determine if you have pandemic or virus coverage. Remember: Even if you think you may not qualify, there’s no harm in asking.

  • Watch the clock

Many policies require timely notice. It’s better to pull the trigger earlier rather than later.

  • File a Claim

Reach out to your insurance agent to notify them that you want to file a claim. A record of your initial loss date will be recorded, which can avoid issues with policy reporting deadlines.

  • Keep records

Be sure to index and maintain evidence of loss. The ability to collect data on sales and expenses will assist in the claims process.

  • Instruct a solicitor

If all else fails, and your insurers outright refuse to pay out on your claim, Specters Solicitors are here for you and your hotel. Contact Specters Solicitors today with your business insurance policy wording and schedule to find out if you can claim for losses due to Covid-19 related closure in 2020/2021.

If you have a claim, we will be able to represent you on a No Win, No Fee basis, meaning you will not have to pay our legal fees if you lose your claim.