The impact of COVID-19 and the nationwide lockdown that followed has brought business interruption (BI) insurance – and more specifically whether insurers are required to cover the claims of organisations affected by the pandemic - into sharp focus.
BI caused by property damage (e.g. fire or flooding) is what often springs to mind as a key risk to be insured against; but some BI policies go further than this by also covering non-property damage, such as losses caused by diseases or by closures of or restrictions to business premises for various reasons.
The extent of cover is determined by the policy terms in each case and it is the interpretation of those policy terms that is important. Many BI policyholders have found themselves disappointed to find that either no cover is provided at all in their policies or there may be potential cover but insurers have rejected their claims.
Earlier this summer, the Financial Conduct Authority (FCA), as the insurance sector’s regulator, brought a test case against a number of insurers in respect of a range of their policy wordings with a view to bringing speedy clarity to as many as 370,000 policyholders who have BI policies that could potentially provide some cover.
On 15 September, the High Court issued its judgment on the meaning and effect of a representative sample of policy wordings issued by eight insurers and on related matters. The focus was on those policy terms that refer to infectious or notifiable diseases occurring within a specified distance from the business premises, or to denial of access to/public authority closures of business premises, or related restrictions on the use of business premises. It also considered the meaning and application of certain clauses that deal with the effective cause of loss.
The judgment offers some welcome guidance on the extent of cover provided by these sample policies, and is, on the whole, favourable to policyholders. Whilst it does not automatically mean that insurers are obliged to pay out claims, as each claim has to be considered on its own facts, insurers will now have to apply the principles laid down in the judgment to their policies when they consider each claim.
The insurance companies may of course seek permission to appeal. Doing so may cause further delays, although the expectation is the appeal will be expedited. In the meantime, the FCA has indicated that policyholders affected by the judgment should expect to be contacted by their insurer within a week from 15 September with an explanation of what happens next.
If you are potentially affected by the test case, the FCA has a webpage specifically dedicated to the case. The FCA is also arranging an opportunity for policyholders to talk to its legal team individually on 21 or 22 September, provided requests are made to the FCA by 5pm on Thursday 17 September. Further details can be found here.
Please note: Nothing in this article constitutes legal advice and we are not liable for any reliance on the information provided. This is a rapidly changing subject, and whilst correct at the time of writing, circumstances may have changed since publication. Please refer to Gov.uk for up-to-date advice on the Government’s response to this issue.
If you require legal advice on your business interruption claim or policy, please contact Alastair Govier, partner in Thrings’ Commercial Disputes team.
Postscript: Since this article was prepared both the FCA and insurers have appealed the High Court judgement to the Supreme Court, which is due to hear the appeal on an urgent basis over four days starting on 16 November. Hopefully, this will mean that we have final clarity in the form of a judgement of the Supreme Court before Christmas