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Law360, London (May 20, 2020, 4:29 PM BST ) Extensions to insurance policies on business interruption caused by outbreaks of disease were "not designed" to cover losses resulting from the coronavirus pandemic, the Association of British Insurers said Wednesday.
The industry body warned that it would trigger a solvency crisis if insurers were forced to make goodwill gestures to businesses reeling from the U.K.-wide lockdown.
The ABI has published a detailed response to an open letter this month from the One Voice Group, four trade associations for the pub sector, which highlighted what it said was the poor response of insurers.
The group said it is "frankly deplorable" that only 1% of members of UKHospitality and 4% of British Beer & Pub Association members had had a positive response from their insurers when they made claims for business interruption.
Such policies typically offer cover only against closure of a business premises resulting from damage to property. But some policies offer extensions to provide cover against public authorities ordering a business to close as a result of a contagious disease outbreak.
Huw Evans, director general of the ABI, said those extensions were designed to guard only against a premises being closed temporarily if a staff member or customer was found to have a bug such as norovirus.
"Business interruption cover is typically built around something specific happening to the physical premises, not something to the whole country," Evans added. "Such policies are not designed to cover a global viral pandemic of a kind we have not seen in over 100 years in this country and nor were your members charged for such cover."
Two major groups have been established, under law firm Mishcon de Reya LLP, to contest the rejection by insurers of claims for interrupted business.
The Financial Conduct Authority also plans to take a sample of representative policy wordings to court to get what it calls an authoritative declaratory judgment on whether insurers are responsible for paying compensation. The findings will be legally binding on insurers, the FCA said.
The One Voice Group called on the ABI to meet it before those court cases go ahead to help find a potential route through the crisis.
Evans said he could understand that business owners would want insurers to make payments "outside of policy terms."
"However, the scale of the problem would see the cost of such payments easily run into billions of pounds for which the insurance industry has not collected premiums or reserved," he added. "Such goodwill gestures could therefore only be delivered at risk to insurer solvency."
--Editing by Ed Harris.
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