Uncertainty looms for business interruption insurance claims

Singapore

ALREADY struggling for survival amid the deepest recession in years, some business owners have also discovered in recent months that the insurance policies they bought for cover against business interruption - and that they are paying thousands of dollars in annual premiums to sustain - will not be paying them a cent.

Amid the Covid-19 pandemic, many insurers have argued that the business interruption policies were not designed to cover government-imposed lockdowns.

However, the UK's High Court on Tuesday handed down a ruling, over a test case brought by the state's financial regulator, that is said to represent a "significant victory" for policyholders.

Among other things, the court ruled that payouts were triggered under most clauses that covered disease and denial of access to business premises. It also concluded that payouts should put businesses back in the position they would have been in, if Covid-19 had not occurred.

Still, uncertainty remains over how much guidance this ruling offers for claimants in Singapore. Lawyers and insurance brokers here told The Business Times that hotels and malls are among the hardest hit by this uncertainty, but the property owners themselves were unwilling to comment, citing the issue's sensitivity.

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Industry bodies like the General Insurance Association and Singapore Hotels Association also did not comment by press time.

Ong Sinyee, an insurance lawyer with Sharpe & Jagger, said her firm has seen an increase in the number of queries from policyholders seeking advice on what claims they are entitled to, partly due to clauses involving infectious diseases often being "ambiguously worded".

"The UK's test case judgment would probably be of positive guidance to cover holders in the region. There is a possibility that (they) may be able to maximise their sub-limits," she added.

Individual properties here have been insured for up to a cap of US$10 million, she noted.

Still, Ms Ong recognises that the ruling is a UK authority and does not bind similar disagreements here. "It simply has persuasive value," she said.

Lawyers at an international law firm, who spoke on the condition of anonymity, said the pandemic has thrown up issues that makes it hard to ascertain whether, and to what extent, a policy is likely to respond to specific claims.

"This is particularly the case with property damage policies that include business interruption," its spokesperson pointed out.

"Business interruption policies usually require damage to property. One of the issues faced now is whether the presence of Covid-19 constitutes damage," he added.

Dennis Dalati, head of claims for insurance broker Marsh's Asia operations, said his department has received about 300 additional claims in recent months, with four in 10 originating from the hospitality and real estate industries.

"Although business interruption due to measures like Singapore's 'circuit breaker' presents a prima facie case for coverage, many insurers argue that the intention of such policies was never to cover for a pandemic," he noted.

While business interruption policies are meant to restore a portion of a company's lost income when a disaster forces it to suspend operations, many insurers had begun to exclude business interruption caused by infectious diseases since the Severe Acute Respiratory Syndrome (Sars) epidemic in Asia almost 20 years ago.

Some policyholders are thus adopting a wait-and-see approach, looking to guidance from judicial decisions farther afield.

The UK judgment, Mr Dalati noted, will not hold identical ramifications for each client or each claim.

"While the policies' conditions reviewed in the test case are similar to those we have in Asia, none were identical as far as I saw. So we will need to work through the implications of the decision and commentary set out in the judgment on a global level to ensure consistency of our interpretation, and then apply it locally," he said.

Some lawyers also pointed out that insurers are likely to launch an appeal against the judgment. It may thus be sometime before there is greater clarity on this issue.

Down Under, too, the Insurance Council of Australia launched a test case in August to determine if pandemic exclusions in business interruption policies are valid after it was revealed many policies relied on an outdated definition of "quarantinable disease".

Lawyer Mark Errington, a partner at RPC Premier Law, said the emergence of these gray areas may spur insurers to design plans to cover against future pandemics, adding: "Pandemic cover is still relatively rare but there are products which exist and I understand that insurers are developing more of these products to address the obvious need for this type of cover highlighted by the severe impact Covid-19 has had on businesses."