Are insurers relying on hospitality businesses being out of their legal depth to avoid paying out?


By Sonia Campbell, Head of Insurance Disputes at Mishcon de Reya, who is leading the legal action against insurers on behalf of Hospitality Insurance Group Action (HIGA)

The Covid-19 pandemic has wreaked havoc in every area of UK business, but probably none more so than in the hospitality industry. Whilst some industries have managed to survive by changing their working practices during the Government’s lockdown, businesses in this sector such as hotels and restaurants saw income plummet to almost zero as they were forced to shut completely to curb the spread of the virus.

Whereas I think it’s fair to say that many of us are finally starting to feel things are beginning to return to normal, many hotels are still seeing dramatically reduced demand as domestic and international tourism stays at historically low levels.

Although the Government has supported some hospitality businesses with schemes such as Eat Out To Help Out, hotels, gyms and spas have not benefited at all. It is these that are likely to be the worst hit over the long term, with many of them turning to their insurers to pay out on their business interruption insurance policies. Without this, thousands of small and medium-sized businesses are at risk of bankruptcy.

Business interruption insurance policies mostly cover common risks and threats that can shut a company down, such as fire and flooding, but some including those written by Aviva and QBE cover disruption caused by infectious disease. As a business, you would naturally hope that a pandemic would never hit these shores but if you have a policy that does cover such eventualities, you would like it to know that it will respond.

I’ve heard from countless businesses that as soon as the pandemic struck and we were sent into lockdown, they were either met with radio silence from their insurers or had their claims rejected. According to the trade body UK Hospitality, only 1% of their members received successful responses from their insurance companies.

With the size of the UK insurance industry, some of the more cynical may think that these financial giants are taking advantage of smaller businesses, given very few have fast access to in-house lawyers or to legal recourse. Indeed, many onlookers say that these behemoths are trying to pull the wool over their clients’ eyes and hope they get away with it.

But we have been doing our best to stop them. That’s why we’ve set up Hospitality Insurance Group Action (HIGA), a free-to-join policyholder group of hospitality businesses confronting insurers as a united team, and just one of two groups allowed by the High Court to make submissions in the FCA test case against insurers. We are right at the heart of the battle.

Depending on the result of the FCA judgment on Tuesday, some 370,000+ businesses may turn out to have a valid insurance claim. However, legal disputes like this are often lengthy and sadly we know that some businesses won’t survive. Even if the Court finds cover in principle for policyholders, I suspect insurers will resist paying out without legal claims brought to force payments.

In the last few months, we have seen insurance companies make the most bizarre arguments or justifications as to why there is no cover and no right to indemnity under policies - despite many policies clearly stating they cover enforced closure by authorities or interruption or interference caused by disease or Government restrictions.

It is a real shame that companies have paid tens of thousands for business interruption cover over the years but haven’t received any cover when they need it most. For hospitality businesses now, the best way forward is to join HIGA by emailing [email protected]. I know that for many hotels, receiving payouts is now a matter of survival.