The insurance industry is facing a reputational and claims crisis amid growing concerns that opaque business interruption clauses have both underwriters and policyholders heading to the lawyers.
As national governments across the world move to force businesses to cease operations in an effort to drive social distancing and reduce COVID-19 infection rates, insurers are being inundated by claims from firms for compensation under their business interruption covers.
The Association of British Insurers has said that firms needed to have opted to purchase a specific pandemic clause into their BI policies to expect it to respond. However, talk across the London market is that some firm’s BI clauses are such that they are open to claims.
As the outbreak started the advice was that firms may have a claim if they were forced to close by a Government or a governmental department, however this seemed to have been quickly squashed by insurers who said the pandemic clause would need to be in place.
Wise Guy has been told that a number of insurers have been taking urgent legal advice in the past week as policyholders have been making claims based on clauses that are at best open to interpretation and at worst have been written in such a way that there is a high chance that the claims will need to be met.
“The likelihood is that this will become a real issue,” one claims expert told me. “The clauses have been so poorly written that they are offer hope to businesses that they can make a claim.
“We have been told that insurers are seeking legal advice and it will not be long before we find law firms proactively seeking claimants to act on their behalf. It is reminiscent of the aftermath of 9/11 and the legal row over the various event clauses in the three policies that covered the World Trade Centre.”