Business Interruption Policy Wordings –
Challenges Highlighted by Claims Experience
Business Interruption Policy Wordings –
Challenges Highlighted by Claims Experience
Published by
The Insurance Institute of London in collaboration with The Chartered Institute of Loss Adjusters
The contents of this report are not intended to be a full and authoritative statement of the law or practice relating to any of the issues covered; readers are recommended to take appropriate professional advice upon any issue which may affect them.
Statements and opinions in this report represent the majority view of the Study Group and are not necessarily in accordance with those of its individual members, their employers or the Institutes.
ISBN 978-0-900493-94-2 (Print)
ISBN 978-0-900493-95-9 (ePub)
ISBN 978-0-900493-96-6 (Mobi)
© 2012 The Insurance Institute of London and The Chartered Institute of Loss Adjusters. Copyright has been claimed and re-extended to all countries signatory to the Berne Copyright Convention and the Universal Copyright Convention.
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The Chartered Institute of Loss Adjusters
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The Chartered Institute of Loss Adjusters
The Great Fire of London in 1666 heralded the beginnings of the loss adjusting profession, but it wasn’t until 1941 that the term ‘loss adjuster’ was used when the Association of Fire Adjusters was founded. The Chartered Institute of Loss Adjusters (CILA) received its royal charter in 1961 and in 1979 the CILA received a Grant of Arms with the motto “Truth and Equity” which remain the key principles and ethos of the profession. CILA provides strict guidance to its world-wide membership on conflict of interest, business ethics and confidentiality.
The CILA’s commitment to setting standards, examinations and professional conduct enables it to support all members across the industry. Members must comply with standards and are actively encouraged to achieve advanced levels of technical and professional competence.
The Insurance Institute of London
The objectives of the Insurance Institute of London are:
“To raise the levels of professional knowledge of those working in insurance in London, to assist members in their career development and to support and reinforce the role and work of the CII.”
The Institute achieves its objectives through its lecture and visits programmes, its journal and its research studies scheme. With its 17,800 members, London is by far the largest institute amongst the Chartered Insurance Institute’s 67 local and associated institutes.
The Insurance Institute of London was established on 18 June 1907 following the initiative of the president of the Federation of Insurance Institutes of Great Britain and Ireland, who was also general manager of the Commercial Union.
In 1912 a Royal Charter was granted and the Chartered Insurance Institute came into being. Over the subsequent years the Insurance Institute of London handed over its library, museum, insurance courses and membership administration responsibilities to the CII and, in 1934, moved to the Insurance Hall, 20 Aldermanbury, which was specially built for their combined purposes.
Preface
We all know what ‘contract certainty’ means technically – that there needs to be a policy in existence at the start of the insurance. But when it comes to business interruption (BI), we think it would be a good idea to take the concept of contract certainty a little further.
Our concern is that there has been a lack of clarity for a long time now – for insurers, adjusters and customers – over certain aspects of BI policies. For example, there is often a big difference between the technical meanings for words in a policy and the way those words are used in everyday business. The way indemnity periods are worked out can be confusing and there are parts of standard BI policies that even the professionals have never agreed about. In these circumstances, its hardly fair to expect customers to have the right answers.
Because of the different schools of thought, the advice to Chartered Loss Adjusters from their Institute has been to take instruction from their principals. But this doesn’t change the fact that similar claims can end up with different outcomes, depending on the insurer’s interpretation of the policy. At best, this leaves us in the same fog we are in now – still confused, still uncertain. At worst, it can leave customers feeling like they’ve been treated unfairly, putting all our reputations at risk.
With this in mind, wouldn’t it just be easier – and perhaps less risky – if we were all more certain about what the words in the contract actually mean? We think so.
In June 2009, the Chartered Institute of Loss Adjusters (CILA) convened a seminar, involving a wide range of industry professionals, to highlight recurring and significant BI issues encountered in practice that would benefit from clarification in policy wordings. The group gave the CILA’s Business Interruption Special Interest Group (BI SIG) a mandate to identify problem areas within the existing BI wording and make recommendations about how to fix them.
May 2010 saw the issue of a first report and many of the observations made at that time are included here. That report was issued primarily to show that some interim progress was being made and it was entitled BI Wording Review Initial Report. In fact, this project is not an exhaustive review of BI wordings. It is an attempt to focus on recurring problems that are capable of being resolved by changes in policy wordings. There may be issues in the wordings that might be clarified but which rarely, if ever, cause a practical difficulty. Likewise, there are common problems with BI claims that cannot be resolved merely by a change in policy wordings. None of these issues therefore fall within the remit of this Report.
The following diagram summarises the approach we have taken.
The initial report was not exhaustive and more complex issues needed some deeper study. So with the support of the Insurance Institute of London, an ambitious project to identify and comment upon the more complex issues was commenced. A cross-industry team was formed to progress this and thanks go to everyone who gave of their time so generously.
This Report marks the culmination of three year’s work and addresses topics identified by the BI community and the CILA. We do not propose prescriptive new wordings. Nor do we want to throw the baby out with the bathwater. In fact, we believe that most of the existing BI wording works, most of the time. As a result, this publication highlights those areas where we think some clarification would help