Insurance payouts for restaurants threatened by speed at which funds clear

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Payouts from insurance companies to more than 37,000 small businesses that suffered Covid-related losses should be made immediately if they are to be saved, a leading tax expert has warned.

On Friday the Supreme Court handed down its decision that insurers should pay out, providing a major boost to restaurant operators that feared they would not be compensated despite having policies in place which they believed covered them against such scenarios.

But Mark Hart, a partner at the firm, said there is a danger that these funds will arrive too late to save many businesses which were profitable pre-Covid but have struggled since and which could become unviable if these  pay outs are held up.

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“The court’s decision was welcome news for small and medium-sized businesses mainly in the retail and leisure industries which have had significant disruption as a result of the pandemic.

“The ruling which will be used as guidance for any disputed business interruption insurance cases, could impact 700 types of policies, and 60 insurers as well as 370,000 small businesses and policyholders.”

Mr Hart continued: “Although the judgement is largely in favour of insurance policyholders, it is also complex. As always with insurance disputes, it is crucial to look at the precise terms of any given policy to determine whether and when it would be triggered, and what losses can be claimed.

“Therefore, businesses should review the policy wording carefully and if necessary, seek legal advice to find out what the findings mean for their policy. For a number of businesses, the paperwork for the claims has been in place since lockdown 1.”

Some policy holders are also entitled to damages for events as a consequence of not having received the insurance pay out last spring, so for example a restaurant may have invested in a new site but could not do so because it was struggling as a result of not having received funds its insurers, or a business’s shareholders became diluted as a result of having to take on investment from third parties as a result of the slow pay out.

“However, many small businesses will find it difficult to prove these claims unless these decisions were minuted at the time, therefore there is a danger that businesses will not receive all the compensation they are due because they do not have the resources to bring those claims and will simply settle for the loss of profits as that is easier to prove.”

Mr Hart said that firms which believe they have business interruption cover should  keep documentary evidence of the way in which the business has been interrupted by the pandemic and the amount of the losses incurred so that they can make a claim now.

He warned that in future, new policies will unlikely include these clauses or level of cover so the ability to claim for loss of profits will be narrowed and the cost of any cover could increase as insurance companies look to recover the losses made on these policies.

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Andrew Seymour

The author Andrew Seymour

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