Tuesday, 19 January 2021
Are you covered by a business interruption insurance policy? Supreme Court judgement explained
Companies with business interruption insurance policies may be in line for a significant payout after a landmark Supreme Court judgement sided with policyholders in a test case brought by the Financial Conduct Authority (FCA) due to the impact of Covid-19 lockdowns. Chris Mallett, associate director at independent insurance broker Aston Lark’s Derby office, explains the ruling.
On 15 January, the UK’s Supreme Court handed down the much-awaited final judgement on whether certain business interruption clauses respond or not to Covid-19.
Its rulings are positive and mean some businesses – although not all – will now be able to successfully claim for the impact of coronavirus.
These only apply to businesses with infectious disease clauses in their policies. Unfortunately, the majority of business interruption policies don’t include these specific clauses and this means for many businesses, the position very much remains the same despite the Supreme Court’s judgement – no cover applies.
As much as the judgement is good news for some, the wide variety of language found across different insurers’ wordings means all businesses should seek individual advice on where they stand.
Those companies that may now be able to claim should have already been identified as potentially affected by the Supreme Court hearing and contacted either by their broker or directly by their insurer.
Insurers will now be considering how the judgement applies to their policies and have an obligation to contact businesses and settle claims as quickly as possible.
Background to the FCA test case on business interruption insurance
The FCA test case considered 21 sample policy wordings from eight insurers. These wordings were included in the test case mainly due to the existence of the following specific clauses within the policies that potentially provided cover:
- Infectious diseases
- Prevention of access
- “Hybrid” clauses that combine elements of disease and prevention of access
The original judgement handed down by the High Court in September 2020 ruled that infectious disease clauses – where an infectious disease occurs within a certain radius of a policyholder’s premises – generally provided cover and that prevention of access-type clauses didn’t.
The High Court also ruled that “hybrid” clauses referencing both disease and prevention of access – which applied to a number of policyholders insured with Hiscox – provided cover where there was mandatory closure ordered by Government regulation.
What Supreme Court ruling on FCA test case means for different business interruption insurance clauses
The Supreme Court judgement ruled on appeals from both insurers and the FCA, and the relevant points are summarised below.
Infectious diseases: The Supreme Court judgement upholds the original High Court ruling that these clauses – which refer to an outbreak of infectious disease within a certain radius of your premises – should provide cover. If you’re able to prove a single occurrence of Covid-19 within the specified radius prior to the relevant lockdown or restriction being imposed, you could make a claim.
Prevention of access: Unfortunately, the Supreme Court judgement reaffirmed the High Court view that no cover is provided under these clauses.
“Hybrid” clauses: For businesses ordered to close by the Government, there should be some cover. The Supreme Court extended the High Court’s view, allowing claims where firms weren’t able to use part of their premises due to Government order.
What to do next
Following publication of the judgement, each insurer will need to consider how it applies to their customers.
Where insurers are liable to pay claims, they’ll each have a different approach to handling claims, and each company’s individual circumstances will also play a role.
Claims have the potential to be affected by when you closed and whether you were able to change your activities, such as restaurants setting up takeaway services.
You should get in touch with your broker in the first instance to discuss what the judgement means for you and what the claims process involves. The broker should be able to advise whether you’re covered and if so, support you with gathering the information you’ll need to successfully claim.
As a strategic partner of the Chamber, Aston Lark is supporting all Chamber members with the offer of a free discussion about what a company’s next steps are with their business interruption insurance claim. For more information, contact firstname.lastname@example.org.