Covid-19 and Business Interruption Insurance

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Covid-19 and Business Interruption Insurance

Business Interruption Insurance

If you have not already read it, our previous article covering the previous Court of Appeal decision considers the background of the case in more detail. Read it here: A New Court Judgment Following The Business Interruption Test Case – Keebles.

In short, when national lockdowns last year caused businesses to close their doors to the public, many sought to rely on their Business Interruption insurance cover to help them to stay afloat. This cover can cost many thousands of pounds per year to keep in place, and the time had finally come to put it to use. Understandably,,  claims came flooding in to the country’s insurance providers.

Many policies restrict cover to only where business interruption has been caused by some damage to the property. Other policy holders did however have potential claims, with avenues such as disease clauses purporting to cover losses caused by infectious diseases; and prevention of access/public authority clauses which purport to cover losses caused by the government placing such restrictions that prevent access to the business premises.

The insurance companies balked at the sheer number of claims received. When businesses complained about the blanket denials of cover, the Financial Conduct Authority brought a ‘test case’ to the courts. The Authority sought clarity regarding these clauses and whether insurers had a right to refuse to pay out on the claims.

The Court was provided with excerpts of 21 policies in place with various insurers. Its job was to interpret the policies and the clauses used within these policies to clarify the matter for all involved. Of the 21 policy samples considered, the Court of Appeal found that 12 of them provided cover:

  • Most of the disease clauses considered did provide cover for losses due to Covid-19;
  • Some of the prevention of access clauses provided cover; and
  • The pandemic and the government’s response to said pandemic must be considered together as a single cause of the covered loss.

The Insurers appealed, with both the insurers and the insureds agreeing that the matter should be fast-tracked to the Supreme Court given the importance of a quick resolution.

The Supreme Court

Arguments were heard by the Supreme Court in December 2020, with the Court promising to come back with a judgment as soon as possible. Today, that judgment has been received and although it is not surprising given the Court of Appeal result, it does confirm that some businesses covered by said policies are able to claim, and be reimbursed, by their insurer. Lord Briggs said of an insurers argument that it was ‘clearly contrary to the spirit and intent’ of the relevant policies.

This does not mean that every single business insurance claim will now be accepted; they will always turn on the exact facts and circumstances of each individual case. However, this does show that insurers do not have a blanket ability to deny such claims, and any argument they have for doing so has been rejected by the highest court in the land.

The Supreme Court will be preparing declarations based on this finding and these will clarify those issues raised and dealt with by the hearing.

Disputing policyholders will be pleased to hear that the court has their back, and they can expect to be contacted by their insurer shortly.

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