Comment: for UK insurers, coronavirus (COVID-19) court battles loom as businesses get creative

Comment: for UK insurers, coronavirus (COVID-19) court battles loom as businesses get creative

MLex: UK insurers may yet find themselves liable for companies’ business interruption losses as a result of coronavirus (COVID-19), despite few policies clearly permitting payouts for the pandemic. As businesses are forced to shut their doors and send staff home, they’re turning to flexible readings of their policies to support claims.

While some are already coming up with some creative ideas, regulators seem hesitant to interfere, given the intricate legal issues and the huge losses faced by businesses in the real economy. That suggests that the courts might be the forum for businesses and their insurers to do battle after the pandemic subsides.

Only a few businesses have pandemics or notifiable diseases explicitly cited in policies as a trigger for business interruption claims. The Association of British Insurers has not put a figure on it, but has said that standard insurance policies, purchased by the ‘vast majority’ of businesses, provide cover only for interruption losses resulting from traditional perils such as fire, flood or theft. Generally, for business interruption losses, some element of property damage needs to be proven. That would not generally apply to a pandemic; but the requirement could be challenged in court, as is already beginning to happen in the US.

New Orleans to Lloyd’s

A New Orleans seafood restaurant, renowned for its crab cakes and gumbo, may provide a test case as it seeks to claim for losses resulting from the virus—the first such insurance lawsuit in the US.

Oceana Grill last month began a case arguing that the mere presence of coronavirus makes the property unusable, constituting direct physical loss to the premises due to contamination of the insured premises.

It is also asking judges to confirm that its policy with Lloyd’s of London covers losses due to enforced shutdown, as the governor of Louisiana issued a ban on gatherings and restrictions on restaurants.

Global businesses may watch this case with interest to see how they could make claims in their jurisdictions.

Political pressure

There is also a degree of public and political pressure on insurers, particularly since many of the companies at greatest risk from coronavirus are highly visible small businesses in the hospitality sector—pubs, restaurants, theatres and the like.

In the UK, lawmakers have warned insurers not to shy away from their responsibilities to pay out to customers if they have a valid claim.

The House of Commons’ Treasury Committee has written to the ABI, asking for responses to a series of data requests on how insurers are treating customers in light of the crisis, including an estimate of how much firms expect to pay out for business interruption in the face of the virus.

The FCA has told its regulated insurers to treat customers flexibly in the wake of the pandemic, however this advice centred on consumers: There is little in there for companies to cling on to.

Retroactive changes

Insurance lobby groups are keen to get ahead of any potential regulatory or government action. Two global associations in the last week have warned against allowing claimants to retroactively add coverage for the pandemic.

That would be inappropriate for a variety of reasons, the sector argues. Not only would it put the industry’s financial stability at risk, but it would hamper insurance companies’ ability to pay out on other claims which have also soared in the wake of the pandemic, such as travel and health policy claims.

However, the line between ‘flexibility’ and ‘retroactive changes’ is a blurry one that may end up being a matter for the courts. In the UK at least, the government is unlikely to issue a blanket statement allowing companies to claim on insurance policies where a pandemic or a notifiable disease was not specifically mentioned.

So that leaves it up to lawyers to come up with creative ways to assess where a claim can be triggered, even where policies don’t obviously cite a disease like coronavirus.

While the New Orleans restaurant case is very much in its early stages and can not provide a definitive precedent either way, it could inspire other businesses to take similar action. Whatever happens, after the crisis subsides, plenty of lawsuits are likely to follow.—© copyright 2019 MLex Market Insight.

This article by Fiona Maxwell was first published by MLex, a LexisNexis® company, on 6 April 2020 and is published with permission.

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