The insurance industry has been rocked by accusations it hasn’t honoured contractual obligations to pay out on business interruption (BI) claims, and is leaving businesses without a lifeline when they need it most.

In a recent case, a ruling in the state of New York favoured Sentinel Insurance Co in its dispute with luxury publication Social Life Magazine through a decision that Covid-19 can’t cause property damage, and so the publication’s property-based business interruption cover was unlikely to trigger.

But while BI coverage was never created to respond to a pandemic, the wording in policies that do extend to non-damage risks like virus and disease is leaving them open to legal challenges, some of which will be funded by third parties betting on a victory for the claimants and a return on their investment.

Two examples are the Hiscox Action Group (HAG) and Hospitality Insurance Group Action (HIGA) – both of which expect to bring lawsuits against their respective insurers soon.

The HAG will do this with backing from Harbour Litigation Funding, while HIGA and its legal representative Mishcon De Reya, which is also representing the HAG, are still in talks with third party funders.

We’ve put together this explainer to help understand the type of wording that’s vulnerable to legal action.