A recent study by Which? found that the small print on insurance policy document is harder for the layman to comprehend than Stephen Hawking’s A Brief History of Time. That may be, but there’s one bit of Black & White Hospitality’s business interruption clause that seems, well, pretty black and white.
It reads: “The insurance extends to cover interruption resulting from prevention of use or access to the premises where there is closure in accordance with instructions issued by any statutory body.”
Shortly after the company behind Marco Pierre White’s various restaurant brands was forced to close its sites, legal director Rob Atkinson contacted his insurance broker to start the process of claiming business interruption for two company-owned sites (the rest are franchised so arrange their own insurance).
“Initially our insurer said we weren’t covered, and that it was never envisaged that we would be covered in the circumstances of a disease such as COVID-19,” he says. “When we pointed out the clause, they said they’d get back to me. A month later they’ve still yet to do so.”
Restaurant operators large and small have been faced with similar responses by their insurance providers. By pooling together a number of member surveys trade bodies UKHospitality, the British Beer and Pub Association and the
British Institute of Innkeeping found that just 1% had received a “positive response” from their insurers.
“People have paid these premiums for years and years,” continues Atkinson, who has 15 years’ experience as in-house lawyer. “In most cases, the policy wording is clear. Business interruption means that if you can no longer trade due to something that is not your fault then the insurance company puts you into the position you would have been in had you been trading. It really is as simple as that.”
Group legal action
As the name suggests, business interruption insurance covers financial losses due to the interruption of normal business. Typically, it is related to physical damage that stops restaurants trading, such as damage caused by fires, floods and vandalism.
Some companies will have purchased add-ons for business interruption insurance including notifiable diseases and denial of access. If a business doesn’t have these adds on a claim is likely to be difficult because COVID-19 does not cause physical damage. But if a business has one then they may have a case, but it will depend on the specific wording.
In late April, Atkinson launched a successful crowdfunding campaign to fund support and possible group legal action over many hospitality insurers refusal to pay out for business interruption during the pandemic. At the time of writing, over £40k has been raised with Atkinson now working with law firm Fenchurch to review over 100 policy documents.
“The two key areas we’re looking at is business interruption for denial of access and notifiable diseases,” he explains. “The intention is to group the wordings into five or six different categories. At the one end you’ll have really weak wording and therefore a weak chance of cover. At the other end you’ll have very strong cover that should have seen a pay-out. In between those two extremes is a grey area, which – frankly – the insurers have created themselves.”
Black & White Hospitality's company-owned restaurant at The Cube in Birmingham
Following the review of policies, the team will send formal letters to insurers setting out their arguments and requesting that claims be settled. The final phase of the project could see insurers face litigation, most likely in the form of group action targeted at individual providers.
Atkinson’s campaign – which has the backing of UKHospitality and a number of large hospitality groups – will be aided to some extent by The Financial Conduct Authority’s (FCA) move to test the wording of some policies in the courts. While the organisation believes that most policies won’t cover businesses for business interruption it wants courts to clarify the situation to end uncertainty.
This has the potential to speed things up for businesses because the FCA has the power to move things though the courts quickly and insurers may agree the speedy settlement of claims with certain policy wordings.
The FCA itself has intervened, urging insurance companies to pay out on rightful claims for business interruption. In a letter to the chief executive of insurance companies, FCA interim chief executive Christopher Woolard said that companies should make payments as soon as possible. If they are not going to pay, they should inform the FCA “the grounds for reaching that decision including how you believe it represents a fair outcome for customers”, he said.
“There are 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,” said Woolward.“A key objective of the FCA is to ensure that financial pressures on policyholders are not exacerbated by slow payment, rather, such claims should be paid as soon as is possible. This is consistent with the wider objective of the authorities to support business and consumers during the current crisis.”
If there are reasonable grounds for an insurer to pay part of a claim but not to make the payment of such claims in full, Woolward has asked that companies adopt an approach of making an interim payment, adding: “your firm’s decision is likely to help inform our assessment of its culture.”
A French form of optimism
Another reason for optimism is a major win on the other side of the Channel. Late last month a French court ruled that insurance giant Axa must pay Parisian restaurateur Stéphane Manigold two months’ worth of revenue losses incurred as a result of Covid-19 enforced restaurant closures.
AXA says it will appeal the ruling, but chief executive Thomas Buberl said his company was seeking an amicable solution and planned to meet most claims from restaurant owners whose contracts had some ambiguity in them. “These contracts represent less than 10% out of total contracts with restaurant owners and I am confident that we will find a solution,” he says. “We want to compensate a substantial part of these contracts; we want to do it quickly”.
Atkinson isn’t the only lawyer that has bought operators together to potentially bring group action against insurers. The Hospitality Insurance Group Action (HIGA) is in the process of launching a group claim against insurers Aviva and QBE over unpaid business interruption policies.
It comes after the group’s legal advisor, Mishcon de Reya, working in conjunction with Philip Edey QC of Twenty Essex Chambers, completed a review of over 500 business interruption insurance policies, submitted by applicants between 29 April and 6 May 2020.
“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 lockdown and how intransigent many in the insurance industry have been towards their policyholders,” says Sonia Campbell, partner and head of the insurance disputes team at Mishcon.
Mishcon says it 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 10 June, with the aim of issuing a claim as soon as possible thereafter.
The backing of trade bodies
Trade bodies are also throwing their weight behind the cause. Last month a joint letter was sent to the Association of British Insurers from industry trade bodies UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, and the Society of Independent Brewers, demanding insurers to meet their obligations to the sector.
“In normal circumstances this would be unacceptable, in this crisis it is frankly deplorable and threatens business survival for thousands of pub businesses,” the letter reads.
Potentially at great expense, a number of individual operators are taking legal action against insurers. Tatiana Fokina – who together with her partner Yevgeny Chichvarkin runs Mayfair restaurant Hide alongside wine shop Hedonism – believes she is covered for business interruption under both notifiable diseases and action of competent authorities’ clauses.
She is shocked that her claim has been rejected and also by the service she has received. “It took over a month to get a response,” she says. “That’s disgraceful in these circumstances. The industry is having to react and make decisions quickly to save jobs. We spend nearly £300,000 a year for both our sites, it’s just not good enough.”
Fokina and Chichvarkin’s lawyers are currently exchanging legal letters with the insurer and litigation has not been ruled out if a satisfactory agreement cannot be reached.
Brasserie Bar Co, the restaurant and pub chain led by chef Raymond Blanc, has also enlisted lawyers after being denied a pay-out by the insurer Hiscox. Blanc, whose Brasserie Bar Co group operates 37 Brasserie Blanc and White Brasserie sites across the UK, took out business interruption insurance from Hiscox, which covers damage caused by ‘an occurrence of any human infection or contagious disease’. This would be on the condition that a local authority had been notified.
White Brasserie's The Cricketer's in Cobham, Surrey
However, Blanc claims the firm is refusing to pay out after he was forced to close all the group’s pubs and restaurants as a result of the Coronavirus lockdown. In its response, Hiscox said its policies were not “designed or priced to cover the extraordinary circumstances” caused by the Coronavirus pandemic.
Also using the legal system is Cerys Furlong, the Cardiff-based operator behind bistro Milkwood and pubs The Lansdowne and The Grange Pub. Her three venues are all insured by different providers, but all rejected her claim for business interruption in relation to notifiable diseases on similar grounds.
“They all said that unless you can prove that there has been an outbreak of the virus on your premises and that was the reason you had to close, you’re not covered,” she says.
Cardiff law firm Capital Law has pushed back on her behalf, arguing that with testing opportunities pretty much non-existent at the start of the outbreak the presence of the virus at a business would be virtually impossible to prove. Capital Law is working on a no win no fee basis, but that – of course – means that if the case is successful Furlong will miss out on a proportion of the pay-out.
“With cash so tight there’s no way we could have pursued this on any other basis,” Furlong continues. “I just feel sorry for operators that don’t have the contacts to get legal help. People that have got a no from insurers should not just accept it and move on. They need be looking closely at the detail and arguing their case.”
Catrin Povey – the lawyer that leads the insurance practice at Capital Law – says her firm has had some successes in persuading insurers to pay-out ahead of litigation. “It all depends on the policy wording. Unless you have a specific exclusion for pandemics then there’s potential for cover depending on the other clauses,” she says.
“Many insurers are saying that it wasn’t their intention to insure against crises like the Coronavirus. Our argument is that is that wasn’t the intention then it should have been expressly stated in the policy. We hope that the test cases will provide clarity on ambiguous policies.”
“Restaurants need to look for extensions under the business interruption section,” she continues. “For either notifiable or infectious diseases or a denial of access clause. Insurance documents are difficult for lay people to make sense of. Restaurants should speak professional advice, but they should also get in touch with their brokers as soon as possible. In policies there’s usually a requirement to notify the insurer of a claim as soon as possible. The window to claim can be as little as 30 days."
Once insurers accept that a claim can be made, another potential area for dispute is quantum – a fancy term for the value of a claim. According to Black & White Hospitality’s Atkinson, one insurance company has justified the paltry sum it has offered by asserting that if the business had been open throughout the pandemic it wouldn’t have made any money as the public was in lockdown and therefore unable to visit restaurants.
“That sort of thing is just unbelievable. In our case I’m confident we have a claim. And our business interruption insurance is capped at £1m for our two venues. We’re not talking about an insignificant amount of money here.
“But I’m less confident that the insurance industry is going to do the right thing by the hospitality sector,” he continues. “I’m aware there are high-level discussions between the Government and the insurance industry, so you would hope some pressure is going to applied there.”
