In recent years, business owners have faced unprecedented challenges. Their Business Interruption policies are designed to protect them, but what happens when that isn’t the case?
Running a business is never easy. Financial pressures, stiff competition, economic uncertainty, marketing challenges and a whole host of responsibilities are a constant, especially if you’re also the owner.
Your business, whatever size it may be and whatever sector you’re in, is your livelihood. If you are the owner and you’ve built your company from scratch, it’s unlikely to just be merely a job. It’s a passion, a driving force and the reason you get up in the mornings.
But recent years have presented business owners with many more challenges, the type none of us saw coming and that we hadn’t experienced before. The global financial crash of 2008 hit businesses of all shapes, sizes and sectors. Then the COVID pandemic devastated countless more, with small-to-medium enterprises (SMEs) hit the hardest, and many suffering catastrophic losses from which they simply couldn’t recover.
The public health measures put in place had a huge impact on the UK’s economy, with our GDP for 2020 taking a 10% dip from the previous year’s figures. That’s thought to be the largest annual fall in centuries. The lockdowns meant lower demand for goods and services. There was also mass disruption to productivity and the few supply chains continuing. All these factors led to businesses of all types and sizes experiencing sharp declines.
SMEs – those with fewer than 250 employees – account for more than 95% of businesses in the UK, and they felt the brunt of the lockdowns, and subsequent restrictions, imposed at the time. Though many managed to scrape by despite massive impacts on every aspect of the business, a grave uncertainty about their prospects for the future loomed large. Two thirds of SMEs paused their trading in September 2020. An estimated 234,000 never started up again.
Worldwide events such as a financial crisis or deadly pandemic can make or break businesses, especially smaller ones that are disproportionately affected and don’t necessarily have the financial resources to keep the wolf from the door. Even furlough and government loan schemes couldn’t prevent the closure of so many businesses.
It’s clear that financial assistance – or, at least the capacity to obtain extra funding – is a must for any SME. That’s where business interruption insurance comes in.
Business Interruption (BI) policies are designed to protect policyholders from financial losses caused by unexpected and/or unavoidable events. BI cover can be an included as part of a standard business insurance policy or can be a standalone purchase for business owners.
BI should cover firms for lost revenue, operating expenses, any loans requiring payment during the interruption period, business taxes and, if called for, the costs of relocating the business. Coverage can be a crucial safety net in uncertain times, baling out firms hit by unforeseen disruptions.
What happens, though, if your insurers refuse to help when you need them most? What tactics do insurance firms use to avoid paying out claims from their customers? We’ll take you through some of the most common, but remember – though many claims from businesses may be refused at first, many of these decisions are reversed when properly challenged with facts and evidence. An initial denial is far from the end of the battle for justice.
Undocumented losses
Insurers often refuse to pay when policyholders don’t adequately prove what losses they have suffered. The devil is in the detail here, as your insurer is likely to demand in-depth financial records to substantiate your claim, as well as profit-loss analyses, balance and cash-flow statements and anything that will establish the validity of the claim you’re making.
A common problem experienced by SMEs is a failure to show cause and effect. If your claim cannot link your lost income to the interruption, regardless of the nature of that interruption, you may find that your chances of success become nigh-on impossible.
If you have had a refusal from your insurer, don’t simply accept it and move on. You can approach your insurer again but make sure you can irrefutably illustrate the severity of your claim. Leave no stone unturned in providing the numbers, and definitely include comparative data from previous years. Enlisting the help of a forensic accountant could help with this, though one shouldn’t necessarily be required.
Document each and every revenue stream affected by the interruption. Building a comprehensive picture of how your business is crucial to a successful BI claim.
Policy wording and interpretation
The wording in your BI policy is important, and many insurers have used the way their policies can be interpreted as grounds for refusal. If your policy wording has any ambiguities that can be used in their favour, you can bet your bottom dollar they’ll do just that.
A working knowledge and understanding of your policy’s coverage limits and exclusion reasons is important here. For instance, do you know for certain that your business insurance covers damage caused by pests? How about problems caused by reasonable wear and tear? Does your insurer still cover interruptions for which a pandemic is responsible? Insurers have been known to argue that ‘no physical damage’ had occurred when companies were affected by the pandemic.
Bear in mind, too, that most BI policies include what’s known as a waiting period deductible. This is essentially a clause that reduces the number of small claims insurers will have to deal with by specifying a period – normally three days – during which the policy’s benefits aren’t applicable and any losses must be covered by the business itself.
As well as the reasons for your losses, you must check if caps are applied to your policy. Is there a limit on how much money your insurer can pay out, or do limits apply to the period for which you’ll be covered?
For the avoidance of doubt, it may be worth having your policy analysed by an independent expert so that disputes relating to interpretations of the policy’s wording can be cleared up. It’s also worth remembering that policies with any inherent ambiguity should be interpreted in favour of the policyholder.
Application of exclusions
Understanding what exclusions apply to a BI policy is a vital part of ensuring their firm has the necessary coverage for interruption-related losses. Knowing what gaps exist in their policy allows business owners to look at securing additional coverage or endorsements to mitigate the risks.
Common exclusions in BI policies include:
Common tactics used by insurance firms include applying pandemic exclusions to non-pandemic losses, or using flood exclusions as an excuse when water damage originated from a different source.
A key approach here is to remind your insurer that the burden of proof is on them. In other words, they must prove exclusions apply or pay their clients’ claims. So, know your policy and challenge the insurer to specify exactly where their get-out clause exists.
If you need help and advice regarding your business interruption insurance claim, contact Abbleys Solicitors’ legal experts on 0161 200 9964 or via email at admin@abbleys.co.uk.
