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Comment: Insurers are bending the rules on business interruption claims

Failure to pay out to small agency owners is ‘corporate bullying at its worst’, says David Speakman

Over the last eighteen months agents and tour operators, the foot soldiers and heartbeat of the travel industry, have been subject to a perfect storm.

Not only have they been starved of airline refunds, but new business has all but come to a standstill.

Given the constantly changing travel rules, existing bookings have been cancelled or rebooked repeatedly – bringing an increased workload with a reduced number of staff to sort out the upheaval.

False hope has followed false hope and a silent unspoken despondency has permeated across most of the industry.

After all the trials and tribulations, some businesses believed their saviour would be their insurance policy that protected them from such an interruption to their business.

Little did they realise that the insurance fraternity would close ranks and refuse to pay up, however valid the policy.

Many travel businesses had been prudent and insured against interruption to their businesses in the event of a pandemic.

Some have had their claims questioned, and there’s nothing wrong in that, but many have clauses that specifically provide for interruption due to a pandemic.

Supreme ruling

The insurers have been less than honest. After first refusing to even consider claims, they were hauled before the Supreme Court by the Financial Conduct Authority (FCA) to be told to pay up.

Yet still they obfuscate, prevaricate and delay even after the Supreme Court’s ruling. They use the new guidelines set out by the court as an absolute in order to restrict the full extent of their liability.

The Supreme Court judgement addressed the interruption of “business” which included pubs and shops, etc.

A travel purchase is planned, discussed, investigated, considered and then may be finally purchased, not to travel immediately, but the anticipation to be savoured weeks, months or even years in advance.

So any actual shop closure only prevents physical face-to-face meetings, though a telephone or video call, email or text can still continue.

A modern travel business, unlike a conventional shop, and irrespective of an open or closed sign on the door, is always open for business.

Travel agencies are special businesses selling an emotional purchase, continually processing flight changes, amendments and various updates until departure.

Therefore “shop” closures might not greatly affect a travel business – but such an emotional and expensive item bought months in advance means a pandemic has more of a psychological effect on customers, especially as dire 24-hour rolling news deters customers from booking and travelling.

‘Utmost good faith’

This effect should be taken into account in any calculation of a claim as both insured and insurers have to be held to higher levels of interpretation of an insurance contract namely, “Uberrima fides” (upmost good faith).
It is an extra obligation that the insured divulges all issues that might affect the risk taken by the insurer; and similarly the insurer should clearly state and divulge any relevant restrictions to that contract up front.

Or, to take case law from Carter v Boehm (1766):“Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.”

It is clear that the insured who sells travel as an agent or as an organiser is a straightforward risk from an insurer’s point of view.

Obviously, if an organiser is escorting tours into active volcanoes, then it is up to the insured to highlight that extra risk.

Similarly, it is up to the insurer when it states that it will cover an interruption of business due to a pandemic, not to qualify it, after the fact, with caveats “only when lockdown” or “wrong kind of pandemic”, “wrong type of customer” or even “a customer that is not local”.

In which language does any insurer not understand or interpret these clauses without the equivalent higher standards of “good faith”?

Interruption of business by a pandemic is not hard to interpret, unless you don’t want to adhere to what you have agreed after an insurance premium has been paid.

Type of agency is irrelevant

Recently I got involved with a claim to help a friend who owns a travel business.

A modern travel agency operates not only within its locale but draws business by reputation, referrals and an internet offering that reaches far and wide.

The nature of a travel agency or tour operator having a physical shop or office is somewhat irrelevant. Travel agencies are now existing as shops, offices, virtual or digital. More importantly, they can operate as a hybrid of all of those.

The relevant insurers don’t want to discuss the claim with the insured. They place the broker, the major loss adjuster and the forensic loss adjuster in a phalanx of obstacles to continually ask for more and more details.

There is little discussion as to principle and interpretation of the policy, and this is totally at the behest of the insurer making them the judge and jury in the claim.

So far, the loss adjuster has asked for analysis and the addresses of every client and how they have been attracted to the business. They have asked for a breakdown of every booking and asked for rebookings.

They have explained they intend only to pay on the period of the shop being closed and only if the infection had arisen within 25 miles of the premises, and claim this is “all in accordance with their interpretation of the SC guidelines”.

‘Corporate bullying’

Even conventional high street businesses that have had to close have had their businesses effected outside lockdown by customers being frightened of venturing out.

Other insured agents have had employee furlough payments deducted from their total claim even though they hadn’t claimed for these payments.

So, effectively, the employer has not had the furlough money and has not had the benefit of the output of that employee. In fact, they have probably had to work longer hours to make up for that loss of capacity.

This beggars belief! How can any reasonable person consider this correct or ethical?

The insurers make great play of offering interim payments, but continual requests for more and more detail to comply with “guidelines” just delays the process.

These delays are life-threatening for already battered travel businesses. It’s corporate bullying at its most shameful and distasteful, a trait of big business, airlines and insurers, that somewhere along the way have lost their integrity and their sense of fair-play. It is a scandal!

Many businesses are now in a precarious position; and have had little help from their associations.

They are at the mercy of insurers who are adamant they shouldn’t have to pay out and if they are forced then they’ll pay out as little as possible.

One travel agent has refused an offer of 10% of their claim, then 20%, then 50%. It should not be a bidding war, there is a correct calculation of the cost of interruption. Insurers should pay up and move on.

Why should good honest business owners be subject to such scumbaggery?

I ask the insurance industry not to embarrass itself further and urge them, in the words of the fatuous and coercive NHS ad, to: “Look into her eyes and tell her you never break the rules”.

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