25
do you have insurance, and what do
your contracts say?
Are losses insured?
It is important to identify at the
outset which policies may respond
to losses. Compliance with policy
provisions around notification and
management of losses is often a
prerequisite to cover, so insureds
need to understand fully what they
are required to do by those policies:
• Event Insurance – the outbreak
has already led to the cancellation
of trade, arts and sporting events,
many of which will be covered under
bespoke event cancellation
insurance.
• Business Interruption –
historically, business interruption
cover is not sold as a standalone
policy, but as an add-on to property
or all-risks insurance. It commonly
insures loss of income arising from
physical damage, but variants exist
providing broader cover that do not
impose this requirement.
• Credit insurance – this insures
against the risk of non-payment by a
contractual counterparty, and
usually covers a specific risk or book
of business. To the extent that
supply chains become disrupted
and payments are not made, it may
respond.
Common issues
For event and business interruption
insurance, a key question is likely to
be whether the policy trigger has
been met. Businesses have had to
take difficult decisions about how to
manage their responses, and
whether the circumstances require
them to cancel events or stop
operations.
Whether insurance responds in
such situations will depend on the
precise wording. Credit insurance
requires that the underlying obligor
had a legal obligation to pay, as it
insures credit rather than legal risk.
Accordingly, where it is excused
from its payment obligations as a
result of the outbreak, for example,
because of a force majeure clause,
there may well be no cover for the
resulting non-payment. It is also
important to review the policy
exclusions, which may exclude
losses arising in certain situations,
or certain categories of losses.
Where an insured party has
suffered many losses, a key
question may be whether these are
treated as one loss, or several
losses, for the purposes of the
insurance. Policies commonly
include ‘aggregation’ language
setting out what constitutes one
loss: this will be important as it will
impact both when policy sub-limits
apply, and whether any deductible is
applied once or multiple times.
Managing a claim
Insurance policies will set out what
steps an insured party need to take
when an actual or potential loss
arises. This should be complied with
carefully, in particular any clause
identified as a ‘condition precedent’
or ‘warranty’ need to be strictly
complied with, as a breach will, in
certain circumstances, enable the
insurer to reject a claim without
needing to show that the breach
caused loss. In particular, insured
parties should consider:
• Notification – policies will set out
what needs to be notified and when.
Typically, an insured party needs to
notify actual and potential losses,
with precise thresholds set out in
policies as to when this obligation
arises and how quickly notification
must be made. Insurers should be
provided with sufficient information
to understand the nature of the
(potential) loss.
• Submission of claim – to obtain
www.conference-news.co.uk
Insurance
payment,
typically an
insured party
needs to provide a ‘proof of loss’ to
insurers describing the nature and
amount of losses suffered, and how
they have been caused by an
insured event. Insurers may require
further information about the losses
before determining whether to pay a
claim.
• Mitigation of loss – insurance only
covers losses which are fortuitous,
and therefore may not cover losses
arising from the insured’s
mishandling of its response to an
insured event. Many policies also
impose express duties on an
insured to mitigate its loss. It is
important to understand at the
outset what the legal and
contractual duties are, and to
ensure they are complied with. In
particular, insured parties may need
to preserve, or exercise, contractual
or legal rights they have to recover
their losses from third parties.
Payment
The nature and scale of the
outbreak may result in serious
cashflow issues for certain
businesses. Where the relevant
insurance policy was taken out after
4 May 2017, there is an obligation
(under s28 of the Enterprise Act
2016) for an insurer to pay any
claim ‘within a reasonable time’.
What is ‘reasonable’ is undefined,
and uncertain, but relevant factors
in assessing this include the type of
insurance, the size and complexity
of the claim, compliance with any
relevant statutory or regulatory rules
or guidance and factor’s outside an
insurer’s control.
If an insurer fails to pay within a
reasonable time, an insured party
can claim damages for any loss
arising from the breach. Therefore,
an insured may have a remedy if the
delay caused additional cash flow
difficulties which affected its ability
to carry on its business. It is
possible to opt out of the Act in
non-consumer insurance, provided
that the transparency requirements
are satisfied.