Retail
COVID-19: Are Policyholder claims against UK Insurers set to rise in the retail sector?
Emma Hockley, Partner at Indemnity Legal speaks with Kiran Grewal for ToyNews, to discuss the huge spike in litigation set to hit the retail sector next year. What with the continuing business interruption, supply chain and policyholder disputes already underway, what can retailers do to manage these disputes?
I
t’s predicted that in 2022 we will see a rise in claims against Insurers by retail policyholders, particularly relating
to business interruption insurance (BI) policies.
What does a retail insurance policy cover? To protect your business against potential risks and help it to survive a difficult time, retail business insurance can cover many key areas.
Liability insurance including public,
employer, and product liability can protect the business against claims arising from injury or damage caused by the business. Premises insurance covers any structural damage caused by an insured event, such as flooding, fire or theft. Stock and contents insurance covers any damage or loss to those items, while BI covers loss of income should those events close or severely disrupt operations. Many businesses have made BI claims as
a result of COVID-19, but insurers argued that their policies were never intended to cover unprecedented business interruptions caused by government measures. A high profile test case brought by the UK’s Financial Conduct Authority established that the UK insurance industry was liable for losses relating to COVID-19 under some BI policies, but other wordings were not considered as part of that test case and insurers continue to reject claims made under those policies.
What are the challenges we see for retail policyholders in the coming year? Continuation of the current hard market COVID-19 has coincided with a hardening
insurance market, driven by increasing loss exposures, a period of low premium income and low interest rates; depressing insurers’ investment income and reducing their risk appetite, making it more challenging and expensive for businesses to obtain insurance. Due to this ‘perfect storm’, already financially pressured retailers could face a ‘David vs Goliath’ situation with insurers, who are taking a much more forensic approach to the investigation of claims and are demonstrating an increased willingness
to allege non-disclosure or fraud with little or no foundation. The impact of COVID-19 on the Financial
Ombudsman Service (FOS) The FOS saw an unprecedented 58%
increase in complaints last year compared to the previous year, driven by COVID-19 travel and BI claims, causing a substantial backlog and delays, adding to its already long dispute resolution process. Only 31% of policyholder complaints against insurers were upheld by the FOS last year and a rise in unpredictable decision making has been seen. Most complaints against insurers related
to the declinature of claims and the most common reason was misrepresentation or non-disclosure of material facts before the inception of the policy. Some well-resourced retailers might be better served by litigating their disputes.
Disruption to the global supply chain The global risk management & insurance brokerage, Gallagher, estimated that UK High Street businesses lost £9.4bn due to supply chain disruptions last year, with around 74% of such businesses being impacted1. Despite evidence of disruption easing, businesses will continue to feel the effects for some time. Gallagher also found that over half of UK High Street businesses were uninsured for
losses arising from supply chain disruption because this protection was not included under standard BI cover, particularly for SMEs.
A common reason for claim refusal is
failure to disclose the involvement of a director in an insolvent business. The case of Ristorante Ltd t/a Bar Massimo v Zurich is an example of where insurers tried, unsuccessfully, to decline cover on that basis following a fire at restaurant premises. We expect to see a rise in similar retail
disputes, to avoid trouble directors should take care in ensuring that their directorship histories are fully disclosed when seeking insurance for any future endeavors.
What can retailers do to avoid a dispute with their Insurers? To stay protected retailers and policyholders should make full disclosure of all relevant facts and matters when purchasing their policy. Policyholders should also compile all
relevant documentation to support the losses for which indemnity is sought when first making a claim, to speed up the process when questions are asked by insurers. Most importantly if a dispute arises or is
likely to, policyholders should seek advice from an insurance specialist, to help save them time and avoid any nasty surprises when resolving a dispute.
Jan/Feb 2022 | toy news | 45
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