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Delayed business interruption insurance claim?

So, you are one of the many businesses that have submitted insurance claims recently for “business interruption” losses arising from the COVID-19 lockdown. There has been much speculation in the press about insurers, who face significant pay outs, failing to deal with these claims promptly.  Many claims have not yet been formally accepted and paid. These delays are heaping yet more misery on already cash-starved businesses.

Have you been affected? Take a look at one of our tips below on what you can do…

What does the law say?

The legislation that applies to this area is Section 13A of the Insurance Act 2015. Section 13A is a relatively recent provision. It came into force in 2017.  It can apply in the handling of any insurance claim, not just claims for business interruption. Using Section 13A may help you to put some pressure on your insurers.
The key aspects of section 13A are:

Contracts of insurance now include an implied term that the insurer will pay an insurance claim within a reasonable time. A reasonable time will always include time to investigate and assess the claim. If they do not pay within this reasonable time, they must pay contractual damages to the insured.

What is “reasonable” in any given case is not defined, but will depend on all the relevant circumstances. This includes the type of insurance, size and complexity of the claim, compliance with relevant statutory and regulatory rules or guidance, and factors outside the insurer’s control.

An insurer may have a defence: it will not be in breach of the implied term where it fails to pay the entire or part of a claim and has reasonable grounds for doing so. However, the manner in which the claim is handled may be a relevant factor in deciding whether the term was breached.

An insured who has suffered loss as a result of the insurer’s breach of the implied term will be able to claim damages from the insurer (over and above the amount due under the insurance contract and interest).

Does Section 13A apply to my insurance contract?

You need to carefully check the policy document to make sure that Section 13A applies to your insurance contract.  In respect of business-related insurance, the duty to pay out within a reasonable time can be excluded by the insurer.  Section 16A allows parties to a non-consumer insurance contract to “contract out” of the implied duty under section 13A, provided that the insurer satisfies the transparency requirements set out in the Insurance Act 2015.  In simple terms, the insurers need to explain to the insured clearly at the outset of the insurance that Section 13A will not apply. If the insurers do so, they will avoid liability, unless the breach of the implied term is deliberate or reckless. For consumer-related insurance, the insurers cannot “contract out”.

What additional losses can I claim?

If Section 13A has not been excluded and the insurers have failed to pay out within a reasonable time, what can you claim?  You can seek to recover any losses that have been caused by the delay in the claim being paid out, however you will need to establish that the losses are not too “remote”.  If your business goes busts as a result of any unreasonable delay, the claim could be substantial.  However, you would need to be able to prove that the business would have survived the pandemic lockdown, if the insurers had paid within a reasonable time. This could raise difficult legal issues. You could also face tricky issues around proving the future profitability of the business.

When do I have to lodge my claim under Section 13A?

You cannot wait indefinitely.  You need to make the claim for damages for late payment within one year from the date the insurer made full payment of, or otherwise settled, the claim. In any event, you may wish to notify your insurers of a claim promptly to put pressure on them to pay up.  If they further delay in doing so, the insurers run the risk of having to pay additional damages.

Contact us

Balfour+ Manson can offer advice on insurance issues if you have been affected by any of the issues cited in this article.  If you need any advice, please contact Gordon Deane on 07876 658 912 or Gordon.deane@balfour-manson.co.uk.