Hospitality businesses urged to pursue business interruption claims


While the hospitality sector awaits a court ruling on business interruption (BI) policy wording interpretation in early July, experts advise owners to take action now to maximise the chances of winning compensation.

[infobox maintitle=”Urgent Action” subtitle=”Submit any business interruption insurance claims now” bg=”blue” color=”black” opacity=”on” space=”30″ link=”no link”]


An unprecedentedly high proportion of business interruption claims have been rejected by insurers during the pandemic: a survey at the end of April by UKHospitality suggested less than 1% OF UK hospitality businesses had successfully claimed on their BI insurance


Last month the Financial Conduct Authority (FCA) launched a court case to whether the wording of some BI insurance policies should provide cover as a result of the pandemic, and an outcome is expected in early July. Until then clarity on the likelihood of payment is set to remain unclear. In the meantime, a number of class actions are being prepared in response to widespread industry concerns that Insurers refusing to pay out on many legitimate claims for business interruption arising from the COVID-19 lockdown.


The Hospitality Insurance Action Group (HIGA), which includes hotels, guest houses, inns and restaurants, was formed to raise funding to provide free third-party business interruption insurance policy reviews.


In fast-moving developments the group comprehensively reviewed 500 business interruption insurance submitted by 6 May and has now determined that the specific wording of BI polices issued by two major insurance companies – Aviva and QBE (UK) – are to be the subject of their focus.


The action group was founded by Bell Yard Communications. Director Melanie Riley tells Luxury BnB: “HIGA wants to reach out to people who are covered by Aviva and QBE, but we need to get a sizeable class before the action, which potentially could kick in in July.”


[infobox maintitle=”Business interruption claimants in the hospitality sector with BI policies underwritten by either Aviva or QBE now have until 5 June in which to let HIGA know if they wish to participate – although according to HIGA if they miss that deadline they may still be able to join the group.” subtitle=”It takes just minutes to fill in the form and join the class action. If they join with in a week or so of 5 June will be fine.” bg=”blue” color=”black” opacity=”on” space=”30″ link=”no link”]


She stressed that although there is inevitable disappointment to be found among some hospitality business owners whose BI cover is not with Aviva nor QBE, they still have a potential to be considered as part of the FCA test case. Mishcon she said would only be pursuing those cases that they think will have the highest likelihood of success.


[infobox maintitle=”A clarion call to anybody” subtitle=”A bit of a no-brainer to join, as individuals or small group of individual businesses won’t be able to afford to fight it themselves. I hope that many hospitality businesses do so.” bg=”blue” color=”black” opacity=”on” space=”30″ link=”no link”]



Her advice to BI policyholders with insurers other than Avia or QBE would in the first instance be to approach the FCA and allow it to consider their wording as part of its review of its test case. Claimants should keep an eye on the FCA’s website. If their policies aren’t considered by the FCA test case, then the financial ombudsman would be the next stage. The financial ombudsman helps to settle disputes for claims up to £355,000.


[button content=”Register now” color=”purple” text=”white” url=”” openin=”_blank”]



[infobox maintitle=”The relevant policy wording for Aviva Insurance Limited is its Material Damage & Business Interruption Policy. The relevant QBE policy wordings” subtitle=”PHOT010419 (Hotel Insurance Policy), PLSC010419 (Leisure Combined), PBCC170619 (Business Combined Insurance Policy) and PNML010119 (Nightclub and Late Night Venue Policy).” bg=”blue” color=”black” opacity=”on” space=”30″ link=”no link”]


Insurers “intransigent” towards policyholders


Partner and head of the insurance disputes practice at Mishcon de Reya Sonia Campbell says: “We were overwhelmed by the expressions of interest in bringing actions against insurers from within the hospitality industry – demonstrating how hard-hit this sector has been as a result of the government-enforced lock-down and how intransigent many in the insurance industry have been towards their policyholders.

“The decision to limit a potential HIGA legal challenge to just two insurers with specific wordings was always going to be difficult and we recognise many HIGA applicants will be disappointed we are unable to act for them.  However, we have sought to protect their rights by contacting the FCA on their behalf, potentially affording them the opportunity to engage with the test case the FCA is to bring against as yet unspecified insurers.  We wish this cohort every success.”

[infobox maintitle=”Whilst we are unable to act for all HIGA applicants” subtitle=”We do consider that many of these policyholders may want to explore other avenues of redress, including the FCA and the Financial Ombudsman Scheme.” bg=”blue” color=”black” opacity=”on” space=”30″ link=”no link”]

“Meantime, we are contacting those HIGA applicants insured by Aviva and QBE and inviting them to confirm their continued interest in participating in a group claim.”

The firm is in discussions with third party funders to secure funding for the costs of this litigation and expects to be able to move forward by Wednesday 10 June, with the aim of issuing a claim as soon as possible thereafter.



Crowd funding meets first target 


Crowd-funding campaign by Black and White Hospitality Management hit its initial target to raise the first £25,000 of a goal of £100,000, and by late May had received more than 100 policies from 39 separate insurance companies. The campaign’s aim is to challenge insurance companies that are refusing to honour business interruption policies specifically for the hospitality sector


A contribution from UKHospitality brought it to its initial target. The next stage of the campaign is underway with a review of policies and insurers’ reasons for declining claims. This will be followed by the preparation of advice on coverage under each category of policy in advance of possible legal action.


The campaign is being headed by Rob Atkinson, Black and White’s in-house hospitality lawyer. He said: “I would urge anyone who thinks they’ve been let down by their insurer to get involved.


“I can’t stress enough that this is being run by the industry not a law firm, and the donated funds are held by a legal-specific, fully regulated crowdfund page called CrowdJustice and any surplus funds generated will be donated to charity.


Kate Nicholls, Chief Executive of UKHospitality added: “Businesses have taken out policies in good faith and many now find themselves not only at a loss but angry as to why they are not being honoured.


“This is a monumental crisis for businesses and the hospitality sector has been one of the hardest hit. At such a time, businesses need all the support they can get to stay alive and keep jobs open. It is important that hospitality presents a united front and we are very happy to support this drive to ensure businesses are treated fairly by insurers.”


One law firm offering no-win no-fee assistance to hospitality businesses pursuing disputed business interruption claims is Capital Law in Cardiff. Financial services and insurance solicitor Catrin Povey tells Luxury BnB: “If any B&Bs are intending to make a claim and have not yet submitted it then I would advise them to do so as soon as possible. One of the conditions of these policies is to notify your insurer of a claim as soon as possible.”


Gather as much claim-related information as you can


She says: “Try to gather as much information as possible. Keep records of all details of losses including staff on the premises that have had to self-isolate, and keep a note of anything that may be relevant when it comes to making a complaint to the insurer.”


She stresses: “The main message is: take action, don’t wait around. The insurance policies are typically 100-page documents, very densely worded, with many cross-references, so seek professional help from a broker or a solicitor if you are unsure.

“We understand it is clearly devastating to all these small hospitality businesses such as B&Bs and we want to help them out. So we are giving a free initial review and if we feel we can take them on, the clients only pay if the claim is successful.


Often policy wording includes a mitigation of loss clause which can be really difficult, saying things like, ‘check up on your property every couple of weeks’, which in lockdown is not necessarily easy to do, which means legal advice may be required.”


She concludes; “For any B&B that has lost business during the CV lockdown I would suggest trying to make a claim. There was a lot of information at the start of the lockdown from the FACA and elsewhere saying insured are not covered, but often that just isn’t the case. There is definitely for businesses to claim. Not all will be successful, but it is definitely worth a shot.”


Awaiting FCA court ruling


Insurance Justice is a group formed to help recover COVID1-19-related payments. Spokesman Jonathan Hartley says the backers include a number of the UK’s leading insurance lawyers. “They have all made clear they will be waiting for the outcome of the adjudication in July where the FCA is bringing certain clauses to court to see where things stand. If the decisions go the right way for policyholders, it would become simpler for businesses to make their claims and win back more of the compensation they are owed.

“Conversely if the ruling goes against them, then it will make it harder to bring BI claims.”


“Severe lack of clarity”


British Beer & Pub Association chief executive Emma McClarkin said: “There has been a severe lack of clarity for pubs on Business Interruption insurance claims. This had added to the terrible uncertainty our sector faces in what is already a very precarious situation.

“It is simply not right that 56% of pub Business Interruption claims have been rejected, whilst 44% still await an outcome.

“We hope the FCA announcement today will help resolve some of the uncertainty our sector faces on its insurance cover.”


Meanwhile the Association of British Insurers has responded to an open letter from beer and pub industry coalition. In late May ABI director general Huw Evans acknowledged the uncertainty the COVID-19 crisis has created for many businesses, particularly in the hospitality sector, and outlined the industry response to COVID-19 with regard to business insurance cover.


“Businesses are typically protected against day to day risks such as damage to premises from fire or flood, motor accidents, supplier failure and employee harm. Last year, in the UK alone, these types of everyday claims from businesses amounted to £7.8bn. Business interruption cover is typically built around something specific happening to the physical premises, not something to the whole country.


“Our latest estimate, informed by data from our members to support our response to questions from the Treasury Select Committee, is that £900m will be paid by insurers to businesses for interruption as a result of the COVID-19 crisis as part of an estimated £1.7bn insurance pay-outs in the UK from ABI members and Lloyd’s of London,” he said.


The message to everyone in the hospitality sector whose business interruption claims have not been settled is clear: submit your claim now if you haven’t already done so, and join an appropriate action group now before it is too late.


Business interruption timeline


Chart with data to plot (and source):


[item title=”23 January”]Wuhan Lockdown – China locks down 83 million citizens in an effort to contain the virus[/item]
[item title=”28 January”]first case recorded in the UK[/item]
[item title=”13 February”]Chief medical officer Chris Whitty outlines four-pronged strategy to help slow the virus spread: contain, delay, research and mitigate[/item]
[item title=”5 March “]first UK death recorded[/item]
[item title=”20 March”]the government announces UK-wide lockdown, with unprecedented limits on where people may gather and meet; business rate relief of 100% extended for hospitality businesses with a rateable value of less than £51,000.[/item]
[item title=”5 April”]Income-streaming provider Wagestream reports UK hospitality has suffered a 98% slowdown since 1 March[/item]
[item title=”9 April”]Crucial packages of support announced by the Government are not being delivered quickly enough to help businesses affected by COVID-19, according to trade bodies representing the UK’s hospitality sectors.[/item]
[item title=”23 April”]Government chief medical officer warns social distancing measures likely to stay in place throughout 2020[/item]
[item title=”28 April “]Hospitality Insurance Group Action (HIGA) launches free third-party policy review[/item]
[item title=”29 April”]The UK hospitality sector saw sales decline 21.3% in the first quarter of 2020[/item]
[item title=”May”]As a barren summer approaches, fears grow that, despite government measures to ease the financial burden of lockdown, many B&Bs and inns will not survive the year and tourist bodies predict it will take the sector years to recover[/item]
[item title=”1 May”]FCA announces it is pursuing a court case for legal clarity of certain BI insurance policy clauses. The hospitality sector is hoping for a ruling in their favour but the move freezes decisions being made on many existing claims until the court outcome is announced in early July.[/item]
[item title=”3 May”]Government discusses staggering travel and return to work procedures[/item]
[item title=”10 May”]Government publishes 3-stage COVID-19 response[/item]
[item title=”11 May”]Announcement that pubs will remain closed until at least July. Trade associations representing pubs, hospitality and brewers have today sent a joint letter to the Chancellor of the Exchequer, calling for measures to save the future of pubs.[/item]
[item title=”13 May”]Beer and Pub sector issues challenge to insurers to meet their obligation to the sector, as industry surveys reveal almost total failure of business interruption cover in response to COVID-19[/item]
[item title=”14 May”]Hospitality workers excluded from new lockdown rules brought into effect advising workers unable to work from home to return to work [/item]
[item title=”20 May”]BBPA says more than half of UK inns and pubs have outdoor space and these should be the first to host physically distanced drinking as early as 4 July[/item]
[item title=”21 May”]Hospitality associations announce frameworks to provide businesses with an outline on how to safely reopen their venues as soon as they are able, while cautioning against making costly, significant changes to their businesses ahead of the final requirements from Government.[/item]
[item title=”22 May”]Hospitality leaders call for social distancing restriction to be cut by half to one metre [/item]
[item title=”5 June”]Deadline for Aviva and QBE policyholders to register their BI claims with HIGA[/item]
[item title=”Early July”]Court ruling on BI policy wording expected.[/item]


Business insurance issues and action to take

While the majority of BI covers for the hospitality trade contain an element of protection or an extension designed to cover claims for losses arising from, for example, specific illnesses, or the discovery of pests or vermin, these are almost always limited to outbreaks occurring at the insured premises.


Only a minority of BI policies list specific diseases and state that “notifiable diseases” are covered, but that there must be closure by a competent authority.


Even though the government classified the disease as “notifiable” early in March, which is technically good news, in reality it doesn’t offer much hope for most businesses, because their standard BI cover won’t include forced closure by the authorities. It is designed to respond to physical damage at a property which results in the business being unable to trade.


The best advice for businesses if they haven’t already done so is to contact their broker, or their insurer if they don’t have a broker, as a matter of urgency. It will not be helpful that their policy is likely to contain a time limit during which claims must be notified, although in this case there may be extenuating circumstances because of a lack of awareness that cover might apply.


The outcome of the FCA reference to the court in July is critical. Insurance sector figures believe it is unlikely that the court will find in favour of the vast majority of policyholders. If it were to do so, there would inevitably be significant increases in premiums across the whole market as policies fall due for renewal, with the overwhelming majority of insurers applying very clear exclusions going forward, not only for COVID-19 but for other possible disease outbreaks.


Although it is not yet clear, the action taken by the FCA will take precedence, but there can be no harm in reporting the matter to the Ombudsman as long as the insurer’s complaints procedure has been exhausted.


It almost inevitable that the government will end up as ‘insurer of last resort’ in many cases. Only time will tell.


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About Dominic Johnson 393 Articles
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