Business interruption insurance

The Supreme Court has heard a very important case for many business people affected by the Covid-19 pandemic. Prior to the Covid pandemic, many businesses thought that they were taking prudent steps by paying for business interruption insurance. As the name implies, this is insurance which invariably attracts a higher premium and is designed to protect businesses in the event that they cannot trade due to unforeseen circumstances. Thus, when the national lockdown was imposed on March 23 2020, many businesses thought that they would be protected having taken out the insurance.

What the businesses did not expect was for the insurers to try to claim that a global pandemic was beyond the scope of most policies and thus was not an event which should trigger payment under the policy. Many business owners were left out of pocket, shocked and baffled – thinking that such an interruption was precisely the circumstances when the insurance should pay out.

The Financial Conduct Authority (FCA) bought a test case in the High Court. The FCA's aim was to obtain clarity for as many parties as possible, as swiftly as possible. Given the importance of the issue, when the insurers decided to appeal the High Court decision, the matter was 'leapfrogged' directly to the Supreme Court.

The court has largely found in favour of the businesses who took out the insurance and who were so devastated when the insurers originally refused to pay out.

Many business interruption policies focus on property damage and only include basic cover for business interruption as a consequence of property damage. Those policies are not covered by the judgement.

However, some policies also cover business interruption from other causes such as infectious or notifiable diseases and prevention of access and public authority closures or restrictions. The FCA brought the court case to clarify the extent of the liability of the insurers which covered these two aspects. Some 370,000 policyholders were identified as holding 700 types of policy issued by 60 insurers that might be affected by the outcome of the case.

The decision is complex and, as is often the case, the devil is in the detail. However, the Supreme Court dismissed the appeal of the insurance companies meaning that many policyholders will now have valid claims.

Following the judgement, the FCA states as follows:

  • Each policy needs to be considered against the detailed judgment to work out what it means for that policy
  • Policyholders with affected claims can expect to hear from their insurer soon
  • Policyholders with questions should approach their broker, other advisers or insurer
  • Policyholders who remain unhappy following their insurer's assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role is to resolve individual disputes

Given the lifeline that such insurance has provided to many businesses in these unprecedented times, affected policyholders may consider taking legal advice, particularly if their insurer continues to resist payment period

To discuss this or any other commercial matter, contact us.

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