Originally written by Timothy Adler on Small Business

NFU Mutual, the insurance company, is using small business Covid grants already received by business owners as a pretext to cutting coronavirus payouts.

The insurer is paying less to struggling small businesses in the hospitality sector because it says they have received small business Covid grants.

The Government has paid more than £10bn to almost 900,000 small businesses in need in the form of one-off grants of up to £10,000, paid out by local authorities.

NFU Mutual said deductions made to reflect state aid are only applied to loss-of-profit claims, not to those made for loss of income. Determining a loss-of-profit claim settlement, it said, includes the need to consider “all taxable income”, including Government grants, as well as any other forms of compensation.

However, the Professional Association of Self Caterers UK (PASC) has branded the practice “highly immoral” and suggests NFU Mutual is using it to boost its own profits.

PASC UK executive chairman Alistair Handyside told insurance trade magazine NS Insurance that insurers should honour their contracts and not behave “so poorly”.

Handyside said: “Overwhelmingly our members are small, family-run, rural and coastal businesses for whom the Small Business Grant Fund is a critical lifeline intended to help businesses survive, not a grant to fund insurance company profits.

“Insurers who deduct grant money are threatening our long-term sustainability and taking taxpayers’ money designed to keep us afloat.

“The impacts of Covid-19 on small businesses in the tourism sector have been devastating.

“Many are now reluctant to make a claim, even though they are rightfully entitled, having paid their premium.”

Beth Bailey, who runs Kernock Cottages in Cornwall, said her original £52,000 insurance claim, waved through by NFU Mutual, ended up being slashed in half after the insurer made various deductions, factoring in Government COVID-19 bailout grants.

Bailey said: “I can’t believe the SBGF grant was designed to subsidise insurance companies. Should it really be the insurance companies who benefit from this money, rather than the small businesses it was designed for?”

What does the High Court case mean for me?

Meanwhile, nearly 400,000 small businesses are waiting to see if insurers will be forced to pay out on their business interruption policies after all. Until now, insurers have claimed that business interruption policies were null and void because COVID-19 was not officially recognised as a disease when those policies were taken out.

City watchdog the Financial Conduct Authority has brought a case against eight insurers in the High Court being heard remotely this week, following months of wrangling over contested business interruption policies. Insurance companies taking part in the case include Hiscox, Ecclesiastical Insurance Office and Zurich.

Judges will decide in a “test case” on policy wordings on how and when firms are expected to pay up. The case is thought to affect some 370,000 firms and could cost insurers billions.

Already, insurers argue that the Government advice to close shops in March was equivalent to official public advice to eat more fruit and vegetables, an argument the FCA’s barrister Leigh-Ann Mulcahy QC has called “absurd”.

Insurers argue that most business interruption policies are only designed to cover losses if premises are damaged by specific events or affected by legal actions taken by the authorities in response.

The case is due to continue for two weeks and a judgment is expected by September at the earliest.

Further reading

Remote working coronavirus: Am I covered by home insurance?

Insurer using small business Covid grants to justify cutting payouts

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