Henry Harris advises brokers to beware placing business interruption cover.
My company was recently appointed on a claim where the business interruption cover was placed on an estimated gross profit basis. The broker telephoned and asked the company what the gross profit was in the last set of accounts.
In this particular case the amount of estimated gross profit that was entered onto the proposal form by the broker did not concur with the definition for gross profit within the policy.
The difference in this case resulted in the amount that should have been declared being more than twice the amount that was actually declared. This is the danger of not fully understanding the difference between the commercial gross profit and the insured gross profit as defined in a policy.
When the assured suffered a loss the adjusters looked at the amount of gross profit that had been insured and reported that this was materially different from the actual amount that should have been declared.
Insurers took the view that this was therefore a material misrepresentation and threatened to cancel the whole of the policy ab initio, which meant that payments on account be returned to insurers.
Through protracted negotiations insurers decided to pay the whole of the material damage claim in full but were only prepared to pay the business interruption claim by applying "average" resulting in a settlement of less than 50% of the claim.
The assured has taken legal advice on this matter and were told that there was a material misrepresentation on the policy and as a consequence of which Insurers were within their rights to cancel. The only recourse being open to the insured if they wanted to go down that route would be to take an action against their broker.
I urge all brokers prior to be careful when placing business interruption cover. They should check the wording of the policy to ensure that the definition of gross profit is in accordance with the definition contained within the policy wording. Failure to do so may lead to actions being taken against brokers by the assured in the event of a repudiation of the policy by insurers.
Because the loss adjuster, having worked for insurers in the past, has been accustomed to being handed a detailed claim, if acting for the insured they have to prepare a detailed claim for which they have received no training.
One who is both experienced and trained in loss assessing can only achieve the pursuit of a successful claim.
