Business interruption claims and fraud

The press has highlighted the Supreme Court ruling on 15 January 2021 which ruled in favour of small businesses in that they can claim for losses arising as a result of business interruption from the Covid-19 pandemic.

It is believed this could affect up to 370,000 small and medium sized businesses that have been forced to close to comply with the government’s stay at home order in March 2020.

In the current economic climate many businesses are suffering, and for some they may be at breaking point. As with all types of claims, some businesses might take an opportunist approach to recover their losses, resulting in people pushing the boundaries and over-exaggerating claims.

Whilst insurance companies are being asked to settle claims as quickly as possible, and it is important for them to do so, they need to be wary that fraud may exist within the claims presented.

Fraudulent claims are dishonest claims for losses which were never suffered or which exaggerate a genuine loss.

In my experience fraud in insurance claims could include one of the following:

• Falsifying sales or exaggerating potential sales in the relevant period;
• Including exceptional sales in a comparative previous period that would not recur or continue in the relevant period;
• Overstating actual expenses; or
• Understating potential direct or variable costs.

Where a claim is thought to be fraudulent, it may result in the claim being forfeited.

It is therefore important that those who are putting together a claim for business interruption, particularly in complex cases, consider robust scenario modelling and performance tracking to ensure an accurate and strong case is put forward.

It is also important for the insurers, whilst being asked to expedite claims as quickly as possible, to consider the claim fully to ensure it is an accurate representation of the business’s losses.

Armstrong Watson has experts who have assisted business owners and insurers with preparing and reviewing claims. 

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