Insurers are threatening to sue the very same companies taking them to court over unpaid business interruption claims.
In recent weeks there has been a series of disagreements between firms forced to close due to coronavirus and the insurers refusing to pay out their business interruption claims.
Policyholders are taking Hiscox to court in a class action suit, while reports indicate that other insurers including RSA and QBE could also be in the firing line.
But in a bizarre twist of fate some insurers are now suing these very same policyholders on behalf of customers who have seen their events cancelled, as first reported by trade magazine Insurance Post.
Wedding venue Beaconside House had their claim rejected only to then receive legal threats
One such firm is Beaconside House in Devon, a wedding venue which had to close its doors after the Government implemented the nationwide lockdown.
After RSA refused to pay out on the venue’s business interruption claim, owner Mark Singer joined the Cottagesure Action Group, a collection of firms planning a class action lawsuit against the insurer.
But in a staggering move, RSA alerted Mr Singer they were preparing to sue him on behalf of a couple whose wedding at the venue had been cancelled.
Mr Singer said: ‘RSA was digging its heels in over our business interruption policy. In the meantime, lo and behold, a letter arrives on my desk saying the same insurer was suing me for “frustration of contract”.
‘It was a claim from a couple who had their wedding cancelled. They wanted a like-for-like replacement next year. I can’t do that because RSA hasn’t paid out on my business interruption policy. It’s unbelievable. I fell off my chair.’
Mark Singer says he ‘fell off his chair’ when he found out RSA was planning to sue him
The letter, which Mr Singer describes as ‘threatening’ and which has been seen by This is Money, warns that RSA is instructing solicitors to recover damages and plans to proceed if the insurer ‘do[es] not receive a positive response from [Mr Singer] within seven days.’
Mr Singer says he wrote back to RSA: ‘It speaks volumes of your company’s attitude that nowhere in your letter threatening to sue me does it mention Covid 19. It’s as if you’ve got your head buried in the sand along with your vast balance sheet.’
This is Money understands it is RSA’s usual process to contact the venue before issuing a legal warning, but this process was not followed in this case.
Reports suggest that this is not the only case of this type, with other firms potentially facing legal action from the same insurers who have turned down their business interruption claims.
A spokesman for RSA told This is Money: ‘Regulators have been clear that venues are expected to refund or rebook couples whose weddings have been affected by coronavirus, however we recognise that our processes and communications need to take in account the pressures businesses are facing.
‘In light of this, we are reviewing our processes to ensure they reflect the sensitivities of the current circumstances. If venues are having difficulty refunding their customers, we urge them to contact us to discuss the options so we can find a solution together.’
Firm’s owner says he can’t rebook weddings cancelled due to coronavirus lockdown until his own insurance claim is paid (pictured: Beaconside House)
Watchdog to test business interruption claims in court
Last week the UK’s financial watchdog announced it will put a business interruption insurance test case through the courts to provide some clarity to policyholders and insurers.
Christopher Woolard, interim chief executive of the FCA, said: ‘We have been clear that we believe in the majority of cases, business interruption insurance was not purchased to, and is unlikely to, cover the current emergency.
‘However, there remain a number of policies where it is clear that the firm has an obligation to pay out on a policy. For these policies, it is important that claims are assessed and settled quickly.
FCA chief Woolard wants a court to provide clarity over business interruption claims
‘There are also some other policies where firms may consider there is no doubt about wording and decline to pay a claim, but customers may still consider there is genuine uncertainty about whether their policy provides cover.
‘Our intended court action is designed to resolve a selected number of key issues causing uncertainty as promptly as possible and to provide greater clarity for all parties, both insured and insurers. It is clear that decisive action is appropriate given the severity of the potential consequences for customers.’
One of the issues the regulator is likely to want to resolve is whether or not so-called ‘public authority’ clauses have been triggered by the virus.
These clauses provide cover for financial loss caused by the closure of a premises by a public authority – with some specifically mentioning contagious diseases as the trigger.
Businesses are arguing that as they have been ordered to close doors by the Government, these clauses have been triggered and their insurers should pay out.
The insurance industry statement published by the ABI on business interruption cover
In many cases however, insurers are denying these claims on the basis that the virus was not recorded as present on the properties of the firms themselves, or within a certain radius, when they closed.
Ashwin Mistry, former president of the Chartered Insurance Institute and chairman of insurance broking group Brokerbility, told This is Money that insurers have deliberately broadened the policy wordings around business interruption insurance over the years to attract more business.
Insurance broker Ashwin Mistry says insurers loosened their policy wordings to attract customers
He said: ’Pandemic cover was originally never meant to be included in any of these business interruption policies. Insurers used to list certain diseases and even then you would only be covered if the disease had been present on the premises or within a certain radius.
‘Then these policies started getting wider, broader, cheaper, and the policy wordings became looser. Insurers widened these options to attract more customers. Some clauses were put in with no underwriting discipline whatsoever. It’s these sloppy policies that are now being triggered [by coronavirus].
‘My fear is these class actions will take 12 to 18 months minimum. Establishing liability is one thing, but proving the loss is another. The loss has to be established within the context of the indemnity period, which could be up to 24 months. But this could run into the billions [in claims].’
The FCA is also looking at whether some policies ‘offer value’ during the current crisis – essentially, if they are worth the price charged if they do not cover events such as the one businesses are now facing.
Woolard added: ‘In addition to this court action, the current emergency has altered the value of some insurance products and we believe that insurers should be looking at both whether their products still offer value.’
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