Insurance companies stand accused of failing to acknowledge valid claims for businesses hit by the coronavirus lockdown.
Frustration borne of a failure to respond to claims, or indeed to actually reply to insured clients at all, has led to the creation of a group claim by a number of UK hospitality businesses. The Hospitality Industry Group Action has already been contacted by more than 500 businesses, concerned their insurers may be dodging their liabilities.
The situation has led the UK’s Financial Conduct Authority to announce it will step in to seek clarity to support businesses. “We believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency,” said Christopher Woolard, interim chief executive of the FCA. “However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.”
According to a survey by the British Beer & Pub Association, 67% of businesses with pandemic cover have had their applications for a claim rejected. And more than half of those applying for a payment under their business interruption cover have also received rejection notices from insurers.
Law firm Mishcon de Reya is leading the planned group action under the HIGA banner, which could cover any policy valid under UK law, no matter where the hotel property is located.
Initially, the group offered to review policy wording for aggrieved companies. “We had been contacted by several clients, such that we could see a pattern,” Mishcon partner Sonia Campbell told Hotel Analyst. The reviews were undertaken ”so we could try to understand if there were good grounds for leverage. We didnt’ expect the response to be so fantastic.”
One issue for many policies in hospitality, is that for smaller businesses, the legal cost of contesting an insurer’s decision could easily exceed the value of the payout being argued over.
“What is important for the hospitality sector is that they get their claims settled – it’s devastating. What’s really great is that the work we’re doing has raised the profile of businesses in this sector. There’s a real sense of injustice.”
Campbell would not be drawn on the findings so far, but expects there to be sufficient grounds to negotiate on a group basis with those insurers whose policies clearly demonstrate they should be providing recompense. Legal action will, ultimately be pursued, should that be necessary.
Typically, an insurance policy for a hospitality business might have two types of policy extension that could cover them for a payout in the current shutdown. An infectious diseases extension may provide cover, depending on whether it lists specific diseases covered, or is all-encompassing. Some of these policies will be linked to government action, or to the physical proximity of the outbreak.
There are also “denial of access” extensions, in which an event or the actions of an official body prevent business from carrying on. Experts warn that with such clauses, the devil will be in the detail.
Separately, law firms Edwin Coe and Harris Balcombe said they were gathering evidence for a potential group claim against German insurer Allianz. The company stands accused of refusing business interruption claims for a number of hospitality and leisure sector businesses.
David Poet, most recently managing director of the global hotel practice at Gallagher, told Hotel Analyst: “Pandemic insurance does exist, and it is being paid out.” He pointed to Swiss Re’s USD250m liability against the cancellation of the Tokyo Olympics as an example.
“Insurers mostly don’t wriggle out of claims. If a wording covers an infectious disease, I would expect them to indemnify.” But he warned that policies will be worded variously, some listing diseases covered, others using a list of exclusions.
Poet said the situation points up a broader issue for hospitality, and its assessment of business risk. “The hotel market has notoriously tight budgets for insurance – and that’s really been quite systemic.” Without a clear perception of the value of insurance cover, rather than its immediate cost, businesses continue to put themselves in a position where, for a relatively modest saving, they are much more fundamentally exposed.
Back at the FCA, there are worries that the current refusal to honour claims hints at wider issues. Said Woolard: “The current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value. Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers.”
HA Perspective [by Chris Bown]: If your hotel burns down, it’s pretty easy to verify that it has burned down, and most policies covering that are fairly well understood, with clauses that have stood the test of time. But pandemic cover, or business interruption due to government command due to pandemic, is delivered under a raft of clauses that are hardly ever tested in action. So you might expect there to be a bit of to and fro.
What you wouldn’t expect, is for your insurer to completely blank you. Anecdotally, we’ve heard of insurance companies simply not returning calls. And for the sector, that’s unacceptable. No wonder the regulator has got involved.