Small Businesses Left Struggling To Survive After Being 'Abandoned' By Insurers

Revealed: How the insurance industry is "closing ranks" to keep out business interruption claims as small firms around the UK face collapse.

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Small businesses across the UK have been “abandoned” by their insurers amid the coronavirus outbreak, with owners left facing an uncertain future.

HuffPost UK has spoken to a number of small and medium-sized businesses (SMEs) who have had their business interruption claims denied after insurance companies insisted the wording of their policy documents meant they weren’t covered.

These reasons range from owners being told that Covid-19 “wasn’t an incident”, to refusals to pay out because there wasn’t a specific outbreak on the premises, to interpretation of the use of the word “plague” to mean only specifically the bubonic plague.

On March 17, chancellor Rishi Sunak made it clear that businesses with pandemic cover should be protected by insurers, stating: “For those businesses which do have a policy that covers pandemics, the government’s action is sufficient and will allow businesses to make an insurance claim against their policy.”

But just weeks later many of those SMEs now say they have been let down by the very safety net they believed would save them.

The Rio Cinema in Dalston
The Rio Cinema in Dalston
Rio Cinema

The Rio Cinema, which has been open in Dalston since 1915, survived the Spanish Flu pandemic in the early 20th century and two world wars, but faces an uncertain future as a result of the coronavirus.

According to the company’s policy with Hiscox, executive director Oliver Meek believes the cinema should be covered under its extended business interruption coverage – but the insurers have since insisted that this isn’t the case.

“When James Bond was pulled until November it was a big warning sign – we knew then that it was very likely we would be closing, so we contacted our insurance broker who told us that we’d quite clearly be covered,” said Meek.

“We closed on March 10, and put in a claim through our broker, after which there was quite a long silence from Hiscox,” he explained. “It was in that time that we started to hear of small and medium-sized businesses like ours being refused.”

While the business interruption insurance appeared to cover issues such as a pandemic, the Rio Cinema was refused because no damage actually occurred at the premises as a result of the coronavirus outbreak.

“Evidence of Covid-19 at the cinema would constitute damage,” Meek explained. “There would have had to have been an outbreak at the cinema and they wanted basically a petri dish with the virus in it for us to be able to claim, but that isn’t specified at all in the policy.

“We have a denial of access clause which basically says that if you’re denied access to your premises by the government or local authority you’re covered – but they said that clause was intended to cover situations such as the police cordoning off the surrounding area due to a gas leak or fire.

“Again, we’ve got specific clauses in our policy about gas leaks and about fires – insurers are very specific about what they out in their cover and they haven’t been here so obviously we’re very frustrated about this.”

The Rio has been a registered charity since the 1970s, and at one point was Hackney’s only cinema. Championing independent film and the community, it regularly hosts schools and holds a dementia-friendly screening once a month for local care homes – but the financial hardship caused coronavirus threatens to limit what they can do even once they reopen, even with the support of their members.

Meek added: “The building has an amazing history of survival, but like all businesses we need money in the bank when we reopen – the business as we knew it isn’t going to come back overnight.

“We don’t know what’s going to happen, and at the moment there’s nothing coming in – money is only going out. That’s why we need the support of the policy we thought we had.”

The Rio Cinema isn’t alone – since the issues with accessing business interruption insurance came to light, more than 100 companies have contacted the Hiscox Action Group, set up to help struggling organisations and businesses in the face of their insurers’ denials.

Daniel Duckett is the owner of the Lazy Claire Patisserie in Belfast, which has also been refused a business interruption payment by Hiscox.

The café has been given the £10,000 grant made available by the government, but with six staff on the payroll and no indication of when restrictions will be lifted, Duckett is working with other businesses to get the insurance payout they believe their policies state they are entitled to.

He said: “We are still waiting on the job retention scheme, and as a small business we do have a lot of outgoings that need to be covered.

“We were expecting to grow our revenue again this year, but things have changed so much that it doesn’t look as though we’ll get back to anywhere near that even when we reopen. This is why we took out the business interruption insurance, and why we really need it now.”

Duckett is also part of the Hiscox Action Group’s steering committee, reaching out to as many SMEs as possible in order to make sure they are represented and informed when it comes to pursing the insurance payouts they were expecting to be able to fall back on.

He added: “There’s sections in their [Hiscox’s] response that actually do bolster our claim. For instance, it says: ‘These sections only cover business interruption losses where they result solely from an interruption to your business caused by a denial of access due to restrictions by the government or public authority’ – which is exactly what has happened in our case.

“Those losses that we are facing are directly because of the action from the government. But then it goes on to say ‘the restrictions that government has imposed are part of his national response to reduce the impact of coronavirus. They were not issued following or in response to an occurrence of your or any specific location, placing them outside the scope of this policy.’

“The policy itself does not define what sort of response the government is allowed to make. We really believe that the wording in our policy is key.”

The action group has written to the Financial Conduct Authority (FCA) asking it to look into the conduct of Hiscox amid the crisis.

The FCA said it was unable to discuss individual firms, but pointed to a statement released on Wednesday that stated “most policies... do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic.” However, the FCA does add that “there are policies where it is clear that the firm has an obligation to pay out on a policy” and should be “settled quickly”.

A spokesperson for Hiscox said: “We understand these are incredibly difficult times for businesses and we are paying claims that are covered by the policies we issue fairly and quickly.

“Our core policies do not provide cover for business interruption resulting from the general measures taken by the UK government in response to a pandemic.

“We review every case individually, and if any customer has concerns about the application of their policy, we encourage them to get in touch with us directly.”

But it’s not just Hiscox customers who have been impacted. SMEs across the country have been left high and dry after it turned out that their business interruption insurance policies didn’t cover Covid-19 for a variety of reasons.

James Ollerenshaw opened The Drawing Room salon in Spitalfields, east London, with his business partner Oskar Pera about six years ago. Like all other hairdressers and barbers across the UK, it was forced to close his doors when the extent of the crisis became clear in March.

Staff in happier times outside The Drawing Room salon in Spitalfields
Staff in happier times outside The Drawing Room salon in Spitalfields
The Drawing Room / James Ollerenshaw

The business had taken out extended business interruption cover with Covéa, under which they thought they would be protected by a major crisis such as Covid-19.

“One of the first things we didd at the start of this outbreak was look at our insurance documentation,” Ollerenshaw said. “It was clear that two things needed to happen – we needed to be closed by the authorities, and Covid-19 needed to be listed by the government as a notifiable disease – and both of these things happened before the end of March.

“That claim would have made all the difference to us when it comes to surviving this crisis as it would cover our costs and lost profits for a period of three months, so we put in a claim.

“That’s when we were told by Covéa that they weren’t recognising Covid-19 as a notifiable disease, even though the government had put it on their official list.”

Ollerenshaw explained that as coronavirus was not on the government’s list when the policy was written, Covéa would not retroactively add it to their list of diseases.

A spokesperson for Covéa said: “In common with the vast majority of commercial insurance policies, our standard business interruption cover is intended to compensate businesses for losses incurred as a result of their being unable to trade because of physical damage to their premises and not because of forced closure by the authorities.

“In some cases we also offer an extension covering such closures but this typically applies only to certain specified contagious diseases and, as Covid-19 is not one of those diseases, cover is not provided for the current situation.”

Ollerenshaw has since penned an open letter to the Association of British Insurers (ABI) and launched a petition with more than 1,500 signatories calling on insurance firms to honour claims from struggling small businesses.

The salon owner said he had heard from a business owners across the UK who had all been left without support after insurance companies deemed that the policy wording in their documents didn’t actually cover Covid-19.

In one instance, he said, a business owner who had the term “plague” in their policy documents, presumed to cover infection disease outbreaks, was told that they weren’t covered as the use of the word actually referred to the bubonic plague – most commonly associated in Europe with the Black Death in the late middle ages.

He added: “The insurance industry must begin with an assumption of validity when assessing organisations that purchased extended business interruption cover. That’s not all companies, because most business interruption cover is for damaged premises. But it’s for those that have this extended cover.

“Secondly, they should be taking a fair and flexible approach to interpreting policy wording. They shouldn’t deny a claim because of obstructive or narrow definitions of what constitutes a plague or a public incident.

“Thirdly, the industry needs to continue to deal with claims fairly and swiftly. Like many businesses, we’ve paid our premiums for years only for us to be completely let down.”

The ABI has been accused of abandoning small and medium-sized businesses when they’ve needed cover the most, closing ranks around the industry to protect it from business interruption claims even while promoting flexibility for customers who have taken out motor or travel insurance.

A spokesperson for the ABI said: “Insurers understand that this is a very worrying and uncertain time for all businesses. Each claim will be examined on its merits by the insurer according to all the policy wording and we can’t comment on any specific insurance contract.

“While most business insurance does not cover for pandemics, overall UK insurers expect to pay over £1bn in Covid-19-related claims. This includes travellers, some businesses, cancelled school trips, event organisers, families organising weddings and in other areas of life.

“Unfortunately, no country in the world has an insurance market that is able to offer widespread pandemic cover. Forcing insurance companies to pay for risks that aren’t covered in contracts would be a shortcut to their insolvency. Given the sheer scale of economic impact, extensive pandemic insurance cover can only happen with some form of government support, and we need a debate about how this can best be achieved in the future.”

Lisa Keenan, who owns the Perfection Wax Boutique in Wishaw, Scotland, is one of the signatories to Ollerenshaw’s petition calling for insurance firms to honour coronavirus claims. Her business interruption cover, taken out with Beazley, was denied because – according to the insurers – the specific wording of her policy documents meant she wasn’t covered.

Lisa Keenan, pictured centre.
Lisa Keenan, pictured centre.
Lisa Keenan

Although the policy does cover her for denial of access within one mile of the business premises, insurers told Keenan that the UK-wide lockdown was not covered under this clause.

“It’s incredibly stressful – we’re only a tiny team but I’m responsible for making sure everyone gets paid, that we can reopen when this finally passes,” Keenan said.

“The insurance I’ve paid for, which I believed would help us if it ever came to this, would go a really long way to making sure we survived this period.

“Instead, it feels as though we’ve been abandoned.”

The refusal letter, sent to Keenan earlier this week, stated that Covid-19 can’t be defined as a public incident under the terms of the policy, adding: “There must have been an identifiable event or occurrence and such event or occurrence must have happened at a particular time and in a location that is very close to your premises (specifically, within the one mile radius).

“The outbreak and gradual spread of Covid-19 is not an ‘incident’ in this sense. Rather it is a gradually growing state of affairs which originated elsewhere.”

Keenan added that she’d put off applying for the government business grant she was entitled to because of the advice that it might impact her insurance claim, but without immediate access to either form of support she has been left stranded.

“On a weekly basis I’m trying to find the money to pay my staff because they’re relying on me, so it’s just put a huge pressure on me.

“We don’t know – nobody knows – when this is going to end.”

Beazley did not respond to HuffPost UK’s request for comment.


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