Quantifying losses not simple after UK financial regulator secures interruption insurance ruling for Covid-19 claims, warn accountants
Accountants are warning that calculating the extent of losses caused by the Covid-19 pandemic are far from straightforward when making a business interruption (BI) insurance claim despite the Financial Conduct Authority’s successful action against insurance companies.
Some 370,000 small businesses denied claims under BI policies for losses arising from the pandemic are set to receive pay-outs, after the UK’s FCA won a test case against insurers in the High Court. The FCA’s test case, which used a representative sample of policy wordings issued by eight insurers, was aimed at clarifying key issues of contractual uncertainty for as many policyholders and insurers as possible, thus removing the need for businesses to resolve a number of the key issues individually with their insurers.
However, the FCA cautioned that although the judgment will bring welcome news for many policyholders, it did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court.
Christopher Woolard, FCA interim chief executive, said: ‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.’
Paul Smethurst, partner and forensic investigation specialist at Menzies, said that businesses may find that quantifying the losses caused by any coronavirus-related business interruption is not be straightforward. ‘As well as considering any obvious loss of profits based on a comparison with normal trading activity, they should consider any contracts that were lost, or failed to convert, due to the lockdown restrictions,’ he said.
‘Businesses may have received enquiries that they were unable to fulfil, or respond to within the required timeframe, and these projected losses should also be taken into account. Some businesses in the hospitality and leisure industry, such as pubs and restaurants, could lose out on quantity discounts that they might have expected to earn under normal circumstances. This could result in increased costs and reduced profitability going forward.
‘With the prospect of more local lockdowns in the months ahead, businesses must continue to keep detailed records of their commercial dealings in a format that could assist them in bringing further claims in a timely way in the future.’
Rafi Saville, forensic partner at accountancy firm HW Fisher, warned that it is now crucial for businesses to pay attention to the wording of any policies. ‘This a landmark case and one of the most controversial legal issues resulting from the coronavirus crisis,’ he said.
‘The ruling is likely to considered as a partial victory and it could have a ripple effect for the entire marketplace, with its conclusions likely to be applied to other affected claims. However, the decision today could possibly add to the confusion experienced by many business owners.
‘Although the ruling may well be subject to an appeal, it becomes even more necessary for businesses to consult their insurance documentation with a view to understanding whether their Covid-related losses will be covered.’
The Financial Conduct Authority and Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office, Hiscox Insurance Company Ltd, MS Amlin Underwriting Ltd, QBE Ltd, Royal & Sun Alliance Insurance, Zurich Insurance  EWHC 2448 (Comm)