Opinion: Insurers Denying BI Claims Is The Greatest Risk of All

Straight from ther Editor’s keyboard;

Long ago there was a thing in British politics called the Social Contract. In short, it was an agreement between the major unions of the 1970s and the Labour government, which promised that unions would ease back on inflation busting pay demands and the government would repay that restraint by protecting the thousands of cushy public sector jobs that were around in the 1970s. Jobs that were usually done by men incidentally.

That contract broke down after a few years because of human nature. People could see that some unions were more equal than others when it came to pay rises, extra tea breaks, vehicle cleaning time, guaranteed overtime at twice the hourly rate etc. The Winter of Discontent was the end result, and after another miserable six months or so of strikes, picket lines and endless leapfrogging pay demands, voters ditched Labour and Thatcher’s Tory party came to power.

I only mention this history lesson because insurers also have an unwritten social contract with the UK punters who pay their wages. At heart, any policy is simply a contract that insures very specific risks and scenarios; your car is stolen, you get a lump sum. The family pet becomes ill and the insurance pays the first £3000 of any vet’s bills. You get the picture.

The argument of Covid-19 Business Interruption is complex, mainly because the UK government took action that very few people foresaw, after the mild dose of SARS that travelled around the world some years ago and caused no lockdowns, no mass panic, no significant numbers of deaths – significant in terms of politics, not to demean those deaths individually. The drastic measures taken since March 2020 have seen many small companies go bust, larger companies also try CVO or Pre-Pack as a way to stay in business and perhaps a million people lose their jobs. There’s more to come when furlough runs out, which it will one day.

The heart of the matter is very simple however; those companies which had something like the followng wording in their policy Schedule should be paid some amount as a settlement; could be business rent, rates, percentage of staff wages, utility bills etc.

‘If the business premises are closed due to notifiable, communicable disease, or compelled to close by local authority, or government agency, that shall be classed as a denial of usage.’

Because those were the circumstances that closed down the UK earlier this year and continue to damage the fabric of society, and hamper economic activity.

There is a flipside to this scenario of course, because not all businesses were forced to cease operations simply because their premises closed. That closure causing total interruption of trade may be true of say a car bodyshop, where nobody can expect a Ford Focus to be repaired and resprayed in someone’s shed.

But insurers, MGAs and brokers continued to operate by setting up remote teams, buying laptops, upgrading IT and security systems in order to continue doing business. Likewise, there is no reason why many restaurants or pubs could not become a food takeaway, especially if 80% of wages were being paid and the director of that company received a 10K grant, which would fund screens, extra sanitising and perhaps a delivery scooter.

An advertising agency could continue in business by getting copywriters, designers, web producers and sales staff to work from home – it is not the fault of the insurers that demand for advertising collapsed due to a pandemic. In that regard, the main offices of the said ad agency COULD be used by SOME staff – there was no complete denial of use beyond the intitial 3-4 weeks of lockdown. The agency, just like a restaurant or an insurance brokerage, needed to rethink its entire business model, not simply claim for all their lost revenues.

All this may seem like nitpicking of course. But you have to look at the problem from both sides and understand how grievances can be settled point-by-point. In the end insurance is about offering a safety net, based on the exact policy words, and the agreed, implicit meaning of those words as understood by both parties. To deny all the BI claims is to venture down the road that the BBC is currently driving along, like Mr Woke Toad, oblivious to the anger left in his wake. Just as people are voting with their wallets and refusing to pay TV Licences, likewise people will start to trade without any insurance, or ghost broker policies, if they regard the policy documentation as being essentially worthless when the worst happens.

Trust, once broken, is extremely difficult to win back.


Clive Zietman, Head of Commercial Litigation at Stewarts, says:

“The insurers will not be happy at what happened today and will doubtless be looking to take this matter to the Supreme Court. The case will give rise to litigation on specific policies and no doubt insurers may, in individual cases, rely on other defences such as failure to make full disclosure at the time the policy was taken out or failure to notify in good time.  Other cases may well settle but this judgment is not a panacea for thousands of prospective disputes.”

Clive also provides further background to the case:

  • The consequences that flow from this judgment are huge – with possibly 370,000 policy holders affected.  The decision is quasi-political in its effect as the impact on the insurance industry is likely to be seismic.
  • On the whole the judgment is much more likely to please the insured rather than the insurers,  The latter were plainly hoping to thwart the tide and relied heavily on the Orient Express case to get them home.  The court did not favour the approach taken by the insurers.
  • The court ruled on 21 sample wordings that may give rise to settlement in cases specifically addressed by these samples but in reality there are hundreds of different policies with a variety of texts used by over 60 different insurers so it was impossible for the court to be definitive.
  • This said, the court took a far less restrictive approach to two topics on which the insurers wanted a much more literal approach (1) policies that cover the consequences of a notifiable “disease” particularly relating to a limited location and (2) policies that cover access to premises due to governmental restrictions resulting from an emergency.  In other respects too the court seemed adverse to a black letter literalist approach.


Commenting on the judgment handed down by the High Court in the FCA test case against eight insurers, Christopher Croft, CEO of LIIBA said:
“Clients deserve clarity, and the fact that this case had to take place at all is a rebuke to our industry and the often obscure language we use. Customers deserve to understand exactly what it is they are getting in language they recognise.
“The swift action taken by the FCA to bring clarity after the fact is to be commended. Many other countries are looking on with interest as their BI cases grind slowly through their legal systems.
“The fact that the court found in favour of the policyholders hopefully brings this action to a close.  The industry’s reputation has been damaged by the debate over exactly what is or is not insured, and we need to think hard about how we redress that and introduce absolute clarity into the product our customers buy. This will include challenging the principles at the heart of these cases — principles which insurers have held dear but which we have seen make no sense to the general public.”
“Depending on the applicable sublimits specified in individual policies, DBRS Morningstar estimates that the total cost of BI claims could be between GBP 4 billion and GBP 10 billion, based on the assumption provided by the FCA that most sublimits are in the GBP 10,000 to GBP 25,000 range per policy. This level of losses could be lower depending on the specifics of the ruling,” says Marcos Alvarez, Senior Vice President and Head of Insurance. “In DBRS Morningstar’s view, the implication of the High Court decision could extend beyond the British insurance industry given the level of integration between insurers and reinsurers on a global scale, the relevance of the London Market, and the common-law precedent that could be used in other jurisdictions.”


About alastair walker 7489 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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