By Tom Whitfield, partner in the commercial litigation team at North East law firm Hay & Kilner
We’ve all heard of situations where what seemed to be a straightforward insurance claim made by an individual or a business has ended up, much to the claimant’s surprise and dismay, being declined or where the policy has been voided.
This issue has become more visible over the last couple of years as many companies that found their operations hampered or stopped altogether by the various pandemic lockdowns have discovered that claims on their business interruption insurance haven’t been the open and shut case they’d expected, and have ended up not being successful.
It’s hardly news that insurance companies will look to find legitimate reasons not to pay out on customer claims if there is the opportunity to do so – after all, every claim that is paid out comes straight off their bottom line.
But when economic times are tight, the microscope that they take to each iota of a customer’s claim, and particularly to the policy application that formed the basis of their agreement, becomes even more powerful.
When you apply for insurance, the information you provide forms the basis of the contract that you make with your insurance company, and by signing it, you are warranting that you have made a fair representation.
But if you haven’t supplied all the information required, have completed the form incorrectly or haven’t made sure that the policy specifically addresses the foreseeable situations that you’ve taken it out to cover, you could find yourself in a situation where your insurer can, quite legitimately, avoid cover under the policy.
Having insurances such as public liability or professional indemnity in place is often the basis on which businesses can apply for and fulfil client contracts, so as well as suddenly facing the financial implications of not getting the expected cover (these claims can be large), you could even find yourself in a situation where you’re not able to trade at all.
It is therefore imperative that the business is accurately represented to the insurance company.
There are various mechanisms in place for challenges to be lodged if you feel that a claim has been unfairly turned down. Initially it will be the insurers own complaints procedure and in the unlikely event that the insurer does not overturn its original decision the next stage is either the Financial Ombudsman or litigation.
The Financial Ombudsman is a free service which seeks to resolve disputes between insurers and their customers. It is not appropriate and/or available in all circumstances.
The alternative is litigation, although the policy may also set out a preferred dispute resolution option such as an arbitration which can be cheaper and quicker.
With either option, there could potentially be significant cost implications to taking forward such a claim, as well as the time required to do so that will take you out of your business.
Insurance companies are also likely to have deeper pockets than most of their customers, so taking expert advice on the merits of any planned challenge before proceeding is highly advisable.
The most important consideration for any businesses taking out insurance policies is to make sure they complete all the documentation correctly and comprehensively in the first place, so that the chances of the insurer avoiding cover are minimised.
Providing as much detail about your requirements as you can when applying for insurance may mean that the process requires a bit more time to complete the process.
But taking this careful approach before you sign any insurance agreement is the best way of avoiding problems and costs arising further down the line if and when you are forced to challenge insurers – and if a challenge is required, it will assist in showing that a fair representation has been made.