IS AN INTERRUPTED BUSINESS SUFFERING BUSINESS INTERRUPTION?
This is a tale of a celebrity chef, several small businesses, government regulation and the lawyer’s old favourite, contract interpretation.
Raymond Blanc is a celebrity chef. He has two Michelin stars and is the successful owner of hotels and restaurants including the celebrated Le Manoir Aux Quat’Saisons. Like all restaurant owners he has suffered a financial hit as a result of closure due to Covid-19. And given the prices at his premises, quite a substantial hit. But Mr Blanc is a smart man with smart advisors. He has insurance and in particular business interruption insurance. His business has been interrupted, so all he has to do is wait for his insurance company to pay up. Or does he?
Not so fast say Hiscox, Mr Blanc’s insurance company. Did you read the contract?
Oh yes, says Mr Blanc. I took out business interruption insurance which covers issues caused by ‘an occurrence or any human infection or contagious disease.’ There is a contagious disease. My restaurant is closed as a result. Pay my claim.
Oh no say Hiscox. The insurance cover is for localised outbreaks of disease, not national pandemics. Sorry.
As you would expect of any great celebrity chef, Mr Blanc was angry. He went to the press. He hired lawyers. In fact, he was not the only one. Several businesses, both small and large, are also planning claims against Hiscox for not paying out on business interruption insurance. They all thought they were covered for the pandemic. Hiscox say no.
Now it’s very easy to blame Hiscox. After all, all insurance companies are thieves that charge ridiculous premiums and wiggle out of claims, aren’t they? Well, like most legal issues, things aren’t that black and white.
If you look at the standard policy wording, it lists what is covered. It includes loss of income due to damage that prevents access to your property; utility failures; damage at the premises of your key suppliers or customers and telecoms as well as telephone and internet supply failure.
There is also a section dealing with “your inability to use the insured premises due to restrictions imposed by a public authority”. Doesn’t that sound like what we have here? Maybe. But the section says it covers your inability to use the premises following certain events. These include a murder or suicide, illness due to food consumed at the premises, vermin in the premises, drainage defects in the premises and a contagious disease “an outbreak of which must be notified to the local authority.”
Can you see where the disagreement comes in? All the other events listed appear to relate to something connected directly to the premises. The closures ordered by the government are nationwide. Mr Blanc’s restaurants were not closed due to localised Covid-19 but due to a nationwide shutdown by government. Hiscox says “Hiscox’s core policy wordings do not provide cover for business interruption as a result of the general measures taken by the UK government in response to a pandemic.”
When buying insurance most people balance the level of cover against the cost. Usually cost is the major factor. Some people take a different view. Take the Wimbledon tennis tournament. After the SARS outbreak in 2003 it decided to take out specific pandemic insurance at a cost of £1.5million a year. That’s £25.5million spent to date. I’m sure some that some of the management team thought this money could be better spent after 16 years of no claims. However, this year Wimbledon will receive a payout of £114million for the cancellation of Wimbledon 2020.
Now, I’m not suggesting that Mr Blanc or any of the other businesses affected are cheapskates or being unfair. They just wanted business interruption insurance. They thought they had it. But I do have a bit of sympathy for Hiscox. I believe them when they say that events such as the Covid-19 pandemic are simply too large and too systemic for private insurers to underwrite.
It will be interesting to hear how the court case goes. The one thing I do know though is that whatever happens, businesses will go under and premiums will go up. And lawyers will win.