#Opinion

The real ‘wide area effect’

By Tim Murphy, director of Luddite Brewing Company

- Last updated on GMT

In depth: pubs must do all they can to claim on insurance policies they have taken out
In depth: pubs must do all they can to claim on insurance policies they have taken out

Related tags: Insurance, Insurance companies, Pubs, Brewer, Coronavirus

We’re the Luddite Brewing Company, our brewpub has been closed due to coronavirus and there seems to be a problem with our business interruption insurance.

We’ve taken it back to the insurers, Thames Insurance, but they say there’s nothing wrong with it. Apparently, it’s not meant to work. It turns out our insurers didn’t mean what they said in the policy, or what it says isn’t what it means, or they didn’t mean it to say what it says, or something.

Anyway, they’re not paying.

You’d think with so many years in the business they’d have got the hang of writing a policy that means what it says and says what it means, but hey, we were buying insurance not a can of Ronseal.

Claiming for business interruption during a pandemic appears to be a problem for everyone. You assume you’re covered, you claim, they tell you you’re not covered and you can’t see why. You might wonder why this is.

Here’s our experience:

No doubt they have other tactics, but the one used to deny our claim is called a ‘wide area effect’. This invention has similar effects on business insurance as the invention of time travel would have on the tourist industry, such as a general feeling of detachment from reality and meaningless schedules. Your policy wording might seem quite straight forward, but once they let the ‘wide area effect’ loose on it, you’ll think the world has gained an extra dimension.

Here’s how it works. In a generalised disaster, they will state that the active clause in your policy only applies locally, they will then hypothetically remove your local damage and show that the wider damage due to the same event would have stopped you operating and caused your losses anyway.

They then combine this separate cause for your losses that, unfortunately, you aren’t covered for, with the trend adjustment clause hidden away in the policy and not intended for this purpose but used anyway and, hey presto, your losses are adjusted to zero, no cover.

It might seem odd that during a global pandemic successful business interruption claims are so few. Now you know why. The well-known perverse effect of this is that the worse the disaster, the less the insurers pay. No wonder they love it.

Why didn’t they just put a pandemic exclusion in the policy? Well, that might have put you off buying the policy and, anyway, this technique is so versatile and successful they don’t really think about it anymore. We’re just supposed to accept, as they want us to, that in a general disaster there is no cover. Not so.

It certainly wasn’t always so. It was only as recently as 2010 that they gained a legal precedent for this, the notorious Orient Express Hotels Ltd v Assicurazioni Generali, SPA to be exact. They get away with it now because they got away with it once. They settled before appeal, smart move. One day it may get overturned, until then we have to play the game that they invented.

So, when we made our business interruption claim, it was ‘game on’. The exact rules depend on your wording, but the pattern of moves will be the same. We claim, they deny on the grounds there is no cover due the widespread and generalised downturn or some such. They don’t even bother to check your wording at this point. Why bother when most people give up here. We didn’t.

From now on, the wording becomes relevant. We read ours even if they didn’t. It says we are covered for loss of gross profit due to ‘any occurrence of a notifiable disease within 25 miles of our premises.’ And that’s all it says. We’re covered right? No one disputes that there are plenty of occurrences of Covid-19 near us and that’s why we had to close. When do we get the money?

Not so fast, you are about to enter a world transformed by the ‘wide area effect’.

These opening moves are so familiar to insurers they aren’t generally awake yet. They now reply that there is a downturn in trade across the entire country due to the spread of coronavirus across the country. There is no cover.

Well, our pub is in Wakefield and so is the coronavirus and that’s why we had to close. Will you pay card, cash or bank transfer?

You can feel them getting a bit tetchy at this point. Why haven’t we gone away? They’ve said ‘wide’ to us and ‘general.’ They start to take it a bit seriously. We get letters instead of emails. Phase one is to nail us down as locals. They tell us what we’ll have to prove is that our losses are due to our local coronavirus and not anyone else’s. What evidence have we got?

It’s our first, ‘where does it say that?’ moment. We’re in Wakefield, our pub isn’t closed because there’s coronavirus in Scotland and where does it say that other people can’t havecoronavirus as well as us and we can’t all be in it together? You start to feel we’re not occupying the same world. It’s about to get worse.

They start phase two, detaching the general from the local. They tell us we’re not closed “due to the local virus”, we’re closed because of the Government measures across the whole country, which are due to the epidemic covering the whole country. They’ve got their crowbar in and they’re levering the Government restrictions away from the local disease.

So our local coronavirus isn’t contributing to the pandemic? Are they saying if there were no coronavirus here, the restrictions would still apply? I think they are saying that. That’s a very specific hypothetical, a pandemic with a hole in it. You’d think if 2,000sq miles of Yorkshire was immune to Covid-19, someone might notice and the restrictions might not apply there. Who knows? Maybe only insurers would notice and they wouldn’t tell anybody.

Why should they? They’re insurers, not reporters. It’s their fantasy.

We put this to them and ask them to respond but they demur. Phase two is in full swing.

They now apply another hypothetical case. They allow us to remain diseased but remove the Government order to close public houses. Hey presto, our losses still exist because of the other Government restrictions still in place.

Have you ever seen a magic trick go wrong? “Is that your card?” “No.” “I think you’ll find it is.” ‘You be amazed then.”

Their problem is they did not detach the local from the general. We are in the pandemic and the pandemic requires us to be in it and that’s why all the Government measures apply to us, because we have Covid-19 here just like everywhere else. They cannot manufacture their ‘wide area effect’. Perhaps, people all being in it together is a bit of stretch for insurers.

And just in case you have any sympathy with the poor insurers having to pay for things they didn’t mean, this is actually a clause specifically designed to give cover for epidemics just like this one and the insurer is protected against having to pay for the wider effects by the 25-mile limit. That’s how they wrote it.

Their next move was to try to prove to us once again our cover was only local using a different policy wording. Perhaps the one they wish we had.

It seems to us they have played the game they invented and lost. Who knows what the Financial Conduct Authority will make of it? They are now reviewing our policy as part of a test case aimed at checking insurers’ responses to Covid-19 claims.

Here’s the thing, it does not say anywhere in our policy that we have to be closed by any particular authority and there is such a thing as a duty of care. We would say that in this situation, our duty of care includes sparing the lives of our customers and employees. This was a clear and legally binding obligation and it required us to close our business.

The Government agrees with us as their measures show and the dead by the tens of thousands concur. This alone should be enough for our policy to respond. But no, according to the arguments of Thames Insurance on behalf of Argenta Syndicate 2121, this would be just another reason our losses would exist anyway and for them to profit thanks to their notorious precedent.

So, at a time when the Government is making huge efforts to save the economy and avoid hardship for the people and real heroes are distinguishing themselves everywhere, the insurers distinguish themselves by finding ingenious ways to avoid helping anyone.

This is not unlawful, it is simply a result of the perverse incentives insurers have created for themselves through their manipulation of the legal system. Their precedent is too precious to them to allow any exceptions.

The contempt insurers are now held in is widespread and generalised. Perhaps this is the real ‘wide area effect’ that should concern them. It will be long lasting and a precedent that won’t be overturned easily.

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