Business Interruption Insurance – how to make a claim
Following our recent article on business interruption insurance, we have produced this step by step guide on the claims process.
Notify your insurer
The first step is to notify your insurer immediately that you have a claim. Check the wording of your policy as this may set out a procedure and time limit for notification. You will need to ensure you follow that procedure to the letter, as this alone may cause a claim to be rejected.
At this stage you need to decide whether to submit the claim yourself or appoint a loss assessor to assist you with quantify your losses. You may also want to get legal advice early on, so you know what clauses to identify as being applicable to your claim.
Follow internal complaints procedure
If the claim is rejected, then you will need to follow the internal complaints procedure if you wish to make a complaint to the Financial Ombudsman Service (FOS). Following this process will also help determine the strengths of any court case, as the insurer will be setting out their position as to why your claim has been rejected.
Again, you can undertake this process yourself or instruct a lawyer or loss assessor to assist you. It is important that you ensure all information provided is accurate and supports your claim. An insurer is not going to forget information previous submitted and may use this against you to reject a claim. However, if information is missed or you were not aware you had to provide it, the FOS is likely to expect the insurer to take this into account if produced later down the line.
If the claim is still rejected check the policy wording for any dispute resolution clauses. If you are a dental practice you may have seen something similar in the BDA associate contract, which either states a party must or may undertake mediation or some other form of dispute resolution before issuing at court. If it says you must, you are then obliged to follow that process and cannot immediately take them to court.
Complaint to the FOS
Once the internal complaints process has been followed you have the option to submit a complaint to the FOS. You must submit your complaint within 6 months from the date of the final rejection letter from the insurer.
You can submit a complaint to the FOS if you are either:
- Micro enterprise = a turnover of less that €2m and less than 10 employees
- Small business = not a micro-enterprise, with a turnover of less than £6.5m, less than 50 employees and a balance sheet of less than £5m
The FOS has the power to order the insurer to pay up to £350,000 in compensation. The FOS can also award interest, either in addition or as part of the compensation. In very limited circumstances the FOS can also award costs. The FOS can award more than £350,000 but the insurer has no obligation to pay above £350,000. If you accept the FOS decision you cannot claim the amount above the limit in the courts.
If the FOS finds in your favour you can either accept or reject and look at taking court action.
One advantage of making a complaint to the FOS is that it is likely to be cheaper than litigation and quicker. You also have the options of going to court if you are not happy with the FOS decision. The FOS also look at what is ‘fair and reasonable in the circumstances’, which is potentially wider than a breach of contract claim, which will purely be looking at the construction of the wording.
The disadvantage is that the FOS do not look at group claims. Each business will therefore need to submit their own claim. This could lead to a variety of findings on the same policies. Depending on the number of complaints the FOS may however take a view to review one policy, make a finding on the wording and leave the parties to negotiate thereafter.
We would recommend instructing a professional at this stage, although again you are free to do this yourself. Whilst the costs may not be recovered, this is likely to be cheaper than litigation if successful.
You can move straight to litigation rather than go through the FOS process or if you reject the FOS’ decision you can then take court action. You have six years from the date of the breach to bring the claim which will be the date the cover should have started from.
The first step is to send a letter before action to the potential defendant. They should reply within a certain period. There is normally some pre-litigation correspondence thereafter.
At this stage it may be worth considering whether to obtain a Group Litigation Order from the court. Where there are a number of cases similar in fact or law the court can make an order that the issues be determined together. There are costs advantages to this. Everyone will bear their own individual costs, but the group costs will be split equally, and individuals will not be responsible for another person’s share. In relation to the Defendant’s legal costs should the claim fail, each claimant is again only responsible for an equal share of these.
The two alternatives to group litigation are multiple claimants, however, each claimant will be responsible for all their legal costs and joint and severally liable for the legal costs of the defendant, meaning the defendant could go after one individual for all their legal costs.
The other option is representative litigation where one claimant acts on behalf of a group of claimants. This is different to group litigation in that all claims must be identical, whereas group litigation is merely sufficiently similar facts or issues to be tried.
Obtaining a Group Litigation Order early on, will allow other potential claimants to come forward, thus helping keep costs to a minimum and the risk of costs to pay low.
Alternative Dispute Resolution
There are may forms of ADR including mediation, round table meetings and arbitration. If the claims all revolve around the legal interpretation of the policy wording, then arbitration may be a quicker and cheaper alternative to issuing at court. However, both parties must agree to participate in arbitration and the decision will be final and binding. Arbitration is also party specific unless the arbitration agreement states otherwise, which could mean different findings on the same policy wording.
Once a claim is issues there is also the possibility of Early Neutral Evaluation where a neutral third party gives a non-binding opinion in the case. Again, if the issues are surrounding legal interpretation this could be a good option to keep costs down. It is normally agreed but can be ordered by a judge.
We have produced this quick reference flowchart on the claims process.
Remember that this will be a long process. The insurance companies will want to avoid making any payments, given the extent to which they may be liable for claims. Many insurers could be made bankrupt by this. Even if you have been advised you have good prospects, you should not rely on a payment being made.
You are free to undertake any of the above avenues yourself. You can also appoint loss assessors and lawyers to help. Taking action as a group will help keep solicitors costs down and there may be the possibility of pursuing claims on a ‘no win, no fee’ basis, where a percentage of any award is taken for legal costs if successful and no fee if unsuccessful. Finally look to see if any other insurance policy you have has legal expenses insurance to fund the claim. As this is related to your business it will need to be a business-related policy, as personal consumer insurance policies are unlikely to cover litigation for your business.
Laura Pearce, Senior Solicitor
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written which may affect the information and advice given therein.