A matter of interpretation: disputes arise over Covid-19 business interruption claims
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Irish businesses have been facing one of the most unique periods of economic disruption in years. Many would have taken out insurance policies in an effort to avoid, or at least cushion them from the effects of such a downturn. Unfortunately, the stance of insurance companies has not made it easy for businesses to receive this aid.
"Business interruption" insurance is an insurance coverage that replaces income lost in the event that business is halted for some reason, such as a fire or a natural disaster.
This type of cover has come into the spotlight recently as a result of the current Covid-19 pandemic. Following on from Government advice, businesses across the country have suspended operations in an effort to curb the spread of the virus.
On paper, the disruption caused by this pandemic to the operation of businesses fulfil the necessary grounds for a claim but in actuality, the necessary conditions are dependent on the type of policy taken out.
There are three reported types of situation arising:
"Business interruption" insurance is an insurance coverage that replaces income lost in the event that business is halted for some reason, such as a fire or a natural disaster.
This type of cover has come into the spotlight recently as a result of the current Covid-19 pandemic. Following on from Government advice, businesses across the country have suspended operations in an effort to curb the spread of the virus.
On paper, the disruption caused by this pandemic to the operation of businesses fulfil the necessary grounds for a claim but in actuality, the necessary conditions are dependent on the type of policy taken out.
There are three reported types of situation arising:
- An insurance policy where the wording is clear, the cover is triggered and compensation is provided – this makes up approximately 10% of policies;
- An insurance policy where communicable diseases are included as a justifiable reason for triggering the compensation but require an occurrence of the communicable disease on the premises e.g. contamination of food that shuts down a restaurant – this makes up approximately 60% of policies; and
- An insurance policy where the justifiable reasons for a claim are not straightforward and require some interpretation – this makes up the remaining 30% of policies.
In relation to the second scenario, it has been argued that since Covid-19 doesn't originate inside the premises of a business then it does not meet the threshold required to receive payment.
The third scenario is even more contentious, requiring a careful reading of the terms and conditions of the policy.
An argument has been put forward that exceptions should be made in light of the extraordinary circumstances but this would have severe knock-on effects as a precedent for the interpretation of future policies.
Complaints have also been made in relation to the perceived unfairness of insurance companies relying on technicalities to avoid claims and the fact that with more businesses closed and fewer cars on the road the level of motor, public and employer's liability claims will fall resulting in increased profits.
Conversely, the fairness of forcing insurance companies to pay out to businesses where the Government is already providing assistance in the form of income support for workers, etc. has been called into question.
The Alliance for Insurance Reform contacted the Central Bank as the regulator and the Minister for Finance and asked them to intervene.
The Minister for Finance stated he expects insurers to engage with businesses honestly, fairly and professionally and, as a general rule, not attempt to reject claims on the basis of interpreting policies to their own advantage.
In a letter issued Friday, 27th March, the Central Bank told insurance companies that where there is ambiguity in the interpretation of contracts of customers who are making claims arising from the Covid-19 disruption, they must find in favour of the consumer.
While some insurers have agreed to pay out on legitimate claims, there is still reluctance on the part of others. A virtual meeting is to be held on Monday, 30th March between the Central Bank, Insurance Ireland and representatives of individual insurers to discuss the matter further.
Written by Noreen McGovern and Matthew Skelly
The third scenario is even more contentious, requiring a careful reading of the terms and conditions of the policy.
An argument has been put forward that exceptions should be made in light of the extraordinary circumstances but this would have severe knock-on effects as a precedent for the interpretation of future policies.
Complaints have also been made in relation to the perceived unfairness of insurance companies relying on technicalities to avoid claims and the fact that with more businesses closed and fewer cars on the road the level of motor, public and employer's liability claims will fall resulting in increased profits.
Conversely, the fairness of forcing insurance companies to pay out to businesses where the Government is already providing assistance in the form of income support for workers, etc. has been called into question.
The Alliance for Insurance Reform contacted the Central Bank as the regulator and the Minister for Finance and asked them to intervene.
The Minister for Finance stated he expects insurers to engage with businesses honestly, fairly and professionally and, as a general rule, not attempt to reject claims on the basis of interpreting policies to their own advantage.
In a letter issued Friday, 27th March, the Central Bank told insurance companies that where there is ambiguity in the interpretation of contracts of customers who are making claims arising from the Covid-19 disruption, they must find in favour of the consumer.
While some insurers have agreed to pay out on legitimate claims, there is still reluctance on the part of others. A virtual meeting is to be held on Monday, 30th March between the Central Bank, Insurance Ireland and representatives of individual insurers to discuss the matter further.
Written by Noreen McGovern and Matthew Skelly