On 15 January, the UK Supreme Court ruled that business interruption losses resulting from the COVID-19 pandemic are recoverable under a variety of insurance policies after appeals by both the Financial Conduct Authority and various insurance companies.
Background to the case
In the lockdown of last Spring, many businesses made claims through business interruption insurance policies for loss of earnings when they had to close.
However, several insurers refused to pay, arguing only the most specialist policies had cover for such unprecedented restrictions.
It was agreed that a selection of policy wordings should be tested in court, setting the parameters for what would be considered a valid claim.
The case went to the Supreme Court which, on 15 January, found largely in favour of policyholders.
The complex ruling covered issues such as disease clauses, whether businesses were denied access to the properties, and the timing of lost earnings.
The test case clarifies some key contractual uncertainties and ‘causation’ issues, but each policy will need to be considered against the judgment to work out the effect on that particular policy.
Will my insurance cover my business?
The decision in this test case is of key importance, particularly as prior to this, thousands of businesses found that their claims were being declined by insurers on the basis that the policies did not cover all or some of the effects of the pandemic.
Each policy and claim does depend on its own particular wording and own specific facts. The test case does not (and was never intended to) answer every single dispute.
Key decisions in the favour of policyholders included:
– Cover for a “disease” as part of business interruption policy include where such disease is part of an epidemic – it would not only cover isolated outbreaks.
– If a business closes as a result of government instruction without it having legal force, this is still effective for any “prevention of access” term of business interruption cover.
– Causation has to be proved for any contractual claim – here the test is to ask if the “loss from interruption … was proximately caused by one of more occurrences of illness resulting from COVID-19 … [as] as result of Government action taken in response to cases of disease which included at least one case of COVID-19 within the geographical area covered by the clause.”
– It is wrong to say that a claim should be limited to anticipated turnover reflecting a downturn as a result of COVID-19 which may have happened even if the business was not closed.
What does the ruling mean?
If you haven’t yet submitted a claim and are considering doing so, now is the time to act. If you are unsure whether your policy covers you then it may be good idea to check using the FCA’s policy checker here.
For those who have submitted a claim, the ruling means that, the FCA will be working with insurance businesses to ensure they start paying eligible businesses as soon as possible (if they haven’t already done so). If you have submitted a claim, hopefully your insurers will now deal with the claim promptly.
If your claim is rejected (in part or as a whole), then it will remain important to consider the policy against the detailed judgment to establish if the rejection is in line with that judgment or not. The FCA have specified they will produce a set of Q&As and draft guidance for “proving the presence of coronavirus” (as is required in some policies) which will assist with this.
Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.
It is reported that all valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.
Get in touch
For more information relating to the Supreme Court ruling and whether you may have a valid insurance claim or should you need any assistance with the preparation of information to your insurance company, such as quantifying or reviewing the loss claim, please contact Chris Johnson on 01254 604371 or using the button below.
This information is correct as of 26 January 2021. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.