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FCA Seek Legal Clarity on Business Interruption Insurance

The Association of Scotland’s Self-Caterers has submitted evidence to the Financial Conduct Authorities’ investigation into Business Interruption Insurance.

Since the designation of COVID-19 as a notifiable disease in England on 5 March, and the subsequent closure of self-catering properties, thousands of small businesses across Scotland which have incurred catastrophic losses are trying to claim on their insurance policies.

Those with business interruption insurance have turned to their insurers for assistance, but have by and large been met with outright rejection of their claims.

RSA underwrites many self-catering businesses throughout the UK, with Gallagher’s CottageSure and Bruce Stevenson’s Staysafe policies being market leading. Thus far, RSA has responded negatively to all intimated claims.

ASSC wrote to the UK Government on 18th March on this subject and still believe that we require an urgent agreement between the UK Government and the Association of British Insurers.

At First Minister’s Question Time on 6th May, the following question was asked regarding insurance company obligations: “Several insurers have been accused of wriggling out of their obligations, which puts at risk the future of many businesses. Will the First Minister meet insurance companies and spell out to them that leadership and social responsibility are crucial during the pandemic, so that, when the lockdown ends, we can still have a functioning economy?” (David Stewart (Highlands and Islands) (Lab).

RSA has recently taken the following stance:

“To clarify further regarding the 25 mile radius, there does need to be a direct link between an incident of COVID-19 in this area and the cancellation and / or lack of bookings at your property, rather than it being simply the impact of the countrywide government restrictions imposed. However, what we are seeing is that the lack of bookings or cancellations are occurring because of the government imposed restrictions on travel and trading and do not arise because of cases of COVID-19 within 25 miles and therefore are not covered. Unfortunately, the Cottagesure policy, in common with most insurance policies, does not respond to the action of government in response to the current situation. I’m afraid that the policy does not cover losses arising from a general reduction in the number of bookings or increased cancellations as a result of the Coronavirus pandemic, including as a result of social distancing measures, self-isolation requirements and/ or restrictions on travel”.

NFU has agreed to cover Covid-19 in some instances, on the basis that they have identified a discrepancy is between the policy wording, which refers to ‘Human Disease’ as defined by the list of diseases, and the Insurance Product Information Document and Schedule, which both use the undefined term ‘infectious disease’. See attached: NFU Policy.

However, NFU states that “You must be able to confirm with us that you have contacted your local Authority / Government to establish if you are entitled to any compensation or Grant. We have been informed of the following 2 grants: If you are entitled to grant funding this will need to be considered when calculating your potential loss of profit claim and we will be relying on our customers following the principle of utmost good faith and not attempting to be indemnified twice from two different sources which would be considered fraud.

The grants are aimed at helping to keep small and medium-sized companies in business and keep productive capacity so that they can recover. Their intention is to:

  • Protect jobs
  • Prevent business closure
  • Promote economic recovery

This Fund is part of a suite of measures designed to support businesses experiencing hardship as a result of Covid-19. Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some reason. To that end, to suggest that the grant is deemed to be ‘income’ seems wholly unjust.

We are hopeful that the FCA will find in the favour of small businesses that believed that they were covered by a comprehensive insurance policy, including business interruption. It would be a huge help to a struggling sector, which has not only been hit with closure, but also with having to refund tens of thousands of pounds in advance bookings, and no prospect of future bookings.

Read about the FCA investigation.


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