Anyone who works in reputation or crisis management knows that in exceptional circumstances like the pandemic, being right comes far behind in doing the right thing. Focus entirely on avoiding legal or financial liability in a crisis, and you miss the biggest risk to the business – reputation.
Think of those wealthy celebrities who have been publicly berated for taking advantage of the UK government’s leave program, or Bronek Masojada, CEO of Hiscox, who fled over his company’s decision. high profile attempt to withstand the resolution of multiple business interruption claims during the pandemic. “Hiscox has undoubtedly suffered trademark damage this year”, he told Sky News in March.
The UK-based insurer is not alone. In July, the New York American Museum of Natural History sued insurance company Affiliated FM for twice denying its COVID-related claims – after what the museum says was a loss of $ 37 million when it was closed for six months – because its policy reportedly capped payments to $ 200,000. Regardless of how complex policy clauses are interpreted, trying to save money on COVID-related payments can result in a much bigger bill for the affiliate if they lose public confidence in fairness in its transactions.
The global pandemic has impacted businesses of all stripes, including art and antique dealers, which depend on fairs and foot traffic. Perhaps the main purpose of shopping malls was to protect themselves against fires and floods when they took out their business interruption insurance policies (known as BII). But the pandemic has brought infectious disease and denial of access clauses to the fore. Faced with decimated fortunes, around fifty galleries filed a class action before the Supreme Court of the United Kingdom, which sided with insurers’ arguments that their underwriting was never intended to cover COVID-19.
Hiscox accepted the judgment, welcomed the clarification and announced an estimated payment of $ 48 million for reinsurance of the art market. His broader estimate of COVID claims is around $ 475 million for 2020 and nearly $ 20 million in 2021. (This article focuses primarily on how the problem played out in the UK, as US businesses have relied on the Paycheck Protection Program, Enhanced Unemployment, and other services rather than the insurance, according to experts.)
Till Vere-Hodge, of the art law firm Constantine Cannon, has been implicated in nearly a dozen COVID-related BII claims for business clients as they attempt to recoup their losses. “A lot of clients have very low expectations when they start the process because insurers have a reputation for taking the premiums but never paying them,” he said.
Whether or not a claim is successful depends almost entirely on the wording of the policy, and there are wide variations between policies – the legacy of a 1990s review commissioned by the UK Competition Commission, which asked businesses to expand the range of offers available. Variations in policy wording between insurers may mean, for example, that one gallery might be covered when restrictions are imposed by the local government, while another might only be covered by a decision imposed by the local government. national government.
Vere-Hodge advises examining the language of individual politics around causation. “The language of the device should always be broad enough to benefit from the Supreme Court ruling,” he said, warning that if the wording is narrow, it could still rule out COVID claims. “And, even if it does, the insured must then show that he has suffered losses as a result.”
Some insurers have sought to quantify these losses by reference to past years. But this can lead to even more variation, since compensation is calculated based on a dealer’s performance over the relevant comparison period, typically an average over a longer period such as three years.
Insurers, of course, have a responsibility to investigate claims to make sure they are valid and that customers are not trying to exploit the situation. But companies distinguish between a job well done and overzealous enforcement of the rules in hopes of reducing exposure, and the industry has at times been caught off guard in this uncharted territory.
According to Mark Dodgson, general secretary of the British Association of Antiquarians (BADA), complaints among the art trade have been met with mixed results.
“Some BADA members have been successful in their business interruption insurance claims, but others have not. It depended a lot on the formulation of the policy, ”he said. “I understand that some Lloyds policies designed for dealers and underwritten by some unions were beneficial, but they were in the minority.” In fact, he said, the majority of BADA’s 350 members refused to take out BII coverage, “or if they did, it wouldn’t be triggered by COVID-19 events, but only by d other causes of business disruption, such as local flooding. ”He said he had not yet heard whether the Supreme Court ruling had a beneficial impact on members’ ability to appeal.
Freya Simms, CEO of LAPADA, the UK association of art and antique dealers, had nothing but praise for his organization’s licensed service provider, Besso insurers. “They have been extremely helpful and supportive,” she said. “Before the government stepped in and it was not clear whether clients would be covered by their policies, Besso made the decision to honor them anyway, so our members generally agreed.”
“The fairs were a different matter, as no cover was available for them,” Simms continued, “but the new £ 750million program announced by the government was a game-changer, so organizers could move on from forward with more confidence. ” The Live Events Reinsurance Program, designed in partnership with Lloyds, will provide a guarantee for special underwritten coverage against government forced cancellation of an event due to COVID. Claims will not be capped.
According to Helen Carless, who chairs the Society of Fine Art Auctioneers and Valuers, to get payment on a claim, “you had to have a very specific clause in your Hiscox contract, and that clause was mostly about restaurants. I don’t know of any that have succeeded. However, she also notes that thanks to moving business largely online, many auctioneers, including her own company, Lawrences of Crewkerne, saw their turnover increase during the pandemic, so had no loss to be claimed anyway.
Hiscox’s quick reaction to the Supreme Court ruling appears to have helped him regain his reputation, as recent earnings show. But what lesson should insurers – and their artistic clients – learn, according to Vere-Hodge? “Don’t use generic policies, but look at this sector in particular, because of some of its very specific complexities. “
While insurers’ errors in judgment about handling the pandemic may have caused them to be more cautious, Vere-Hodge observed that they had used annual policy renewals to close the gap. “On the front page of updated policy conditions from many insurers,” she said, “there is now a significant COVID exclusion notice. “
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