Business Interruption Claims

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The impact of Covid-19 has hit many businesses in almost every sector throughout the UK. 

Insurers say that the cost of a pandemic are too high for the industry to cope on its own and that governments should be involved in supporting claims for future pandemics. The Association of British Insurers estimated that insurers will pay out £900m on business interruption claims relating to coronavirus. 

However, at this time, it is not clear whether UK business owners will be covered under their policies for business interruption due to coronavirus. Insurers have disputed pay-outs citing that wording under the notifiable disease clause in the policies don’t include the wide-ranging interventions and responses that the government has issued. The FCA has now said it would bring forward an action to test the validity of claims at the end of July. 

If you have a claim 

Basic claims may include damage to premises that owners were forced to leave vacant during lock-down. However, other policyholders may have cover for specific business interruption due to notifiable diseases. In general, these claims will cover loss of net profit or additional costs of safeguarding assets or stock during the period of disruption. 

Insurers will be all too aware that there will be policyholders who will push the boundaries and that claims might be exaggerated. Our experience with claims for business interruption tells us that it is important to get the claim right and to get you on a solid footing with the insurer when they are reviewing your claim. First impressions count. 

The problem with poorly presented claims is that you push the insurer away by creating the wrong impression and set your expectations at the wrong level, leading to problems later on. When presenting any claim, it is equally important to tell the real story. 

The process of putting together the claim generally starts with proving the loss and how best to quantify it. The principle of calculating the lost income may be straightforward, but the calculations can be more complex, and any claim will have to be substantiated with facts based on historical trading results. 

When trying to quantify your possible loss, your calculations may require: 

• Robust business scenario modelling; and/or 
• Performance tracking against different scenarios but for lock-down. 

When putting together a report, we recommend that you consider the following: 

•  An overview of the business and how it sits in the market; 
• Timeline of events; 
• Was the business closed completely; 
• Have you re-opened and when did you re-open; 
• Did you have to turn business away and, if so, of what value, from whom, and for what reason; 
• Were you able to mitigate any losses? If not, why?; 
• Seasonal fluctuations and trends; 
• Did you miss out any new product launches; 
• Had you recently launched a new product that has been significantly impacted; 
• Compare projected income with actual income generated; 
• What government assistance did you receive that should be off-set in your claim; 
• Prepare detailed calculations of the loss including the assumptions used; and 
• Provide comparative data and contemporaneous evidence. 

It is highly likely that the claim will be initially contested by the insurer. Therefore, you need to be prepared and try to pre-empt the insurer. Be aware that your assumptions will be challenged. Don’t hide the issues. For example, if you know the business was suffering prior to the interruption, which the historical data will show, then it is critical that the size of the claim is plausible and can be substantiated by the relevant evidence. 

Armstrong Watson have experts who have assisted business owners and insurers with preparing and reviewing claims. If you require any assistance with a claim or would like to discuss whether you think you have a claim, then please contact a member of our team.

Ultimately, you want to be able to bring together the story, the numbers and the corroborative evidence.