Many businesses take out business interruption insurance each year in order to protect them in the event that there is some disruption to the conduct of their business, writes Kelvin Farmaner (pictured), Partner and Head of the Insurance & Regulatory Team with Trethowans.
The Coronavirus pandemic has of course been an unprecedented disruption to many businesses. From March 2020 onwards many businesses were forced to close by government-imposed ‘lockdowns’ put in place by a series of regulations, causing those businesses to sustain enormous losses which their owners thought were covered under the terms of their business interruption insurance policies. Many businesses claimed on their policies but there was general uncertainty as to whether those policies provided cover, and if so to what extent.
Earlier this year the Supreme Court gave Judgment in a test case on this issue. The idea was that by fast tracking a test case to the Supreme Court this might help to clarify the many thousands of other cases going through the system.
Many insurance policies deal with damage to property, with only basic business interruption cover linked to property damage. However, other polices are wider and provide for business interruption cover as a result of a notifiable disease within a specified distance of the business premises (disease clauses) and prevention of access to or use of the business premises due to public authority intervention (prevention of access clauses). The Supreme Court decided that in many cases these clauses will provide cover for business interruption losses resulting from Covid-19. The Court also went on to provide some guidance on the vexed issue of causation, or what connection must be established between the insured event and the losses sustained.
The Financial Conduct Authority (FCA) has encouraged insurers and brokers to work constructively with policyholders to resolve claims as swiftly as possible following the Supreme Court guidance.
Anecdotally, it seems there is still some uncertainty around what can or cannot be claimed notwithstanding the laudable attempts of the FCA and the Supreme Court to bring as much clarity to bear on these issues as possible. Each policy will need to be considered against the detailed judgment to work out what it means for that policy. Policyholders should expect to hear from their insurers or brokers and if questions remain they should be directed to the insurers and brokers in the first instance.
Unfortunately, there remains scope for disagreement in any individual case and parties need to look at the specific wordings of each policy, schedule and policy amendments and try to apply them to the facts of each individual case. Recent data from the FCA, reported in Insurance Age magazine, indicates that Covid-19 payments recently passed £1 billion, so there is reason to hope that this issue is being dealt with.
Trethowans would be happy to assist any parties impacted by these issues and in need of further guidance and assistance.
023 8082 0527