At long last, some good news about Business Interruption Insurance

Category: Commercial, Dispute Resolution

Earlier this year, the Supreme Court handed down its final judgment in a case looking at insurance claims for losses caused by Covid-19. The outcome provides some much-needed certainty for business owners up and down the country. Their insurer’s decision not to pay out has left many of them in limbo. Below, we look at the Business Interruption Insurance (BII) decision and what it may mean for you.

What is Business Interruption Insurance?

The lockdowns over the last 12 months have had a clear and significant impact on the country’s economy. Both large and small businesses, had revenue streams cut off overnight.

Many businesses had sought to protect themselves from this by purchasing, often at great expense, business interruption insurance (“BII”). BII is a specific insurance cover. Any insured parties forced to close temporarily can claim their losses from their BII insurer. Policyholders did so, or at least they thought they did so, safe in the knowledge that their insurer would pay out their losses if they were forced to close through no fault of their own.

Many claims made since the first lockdown in March last year, have been rejected. This was on the basis that many policies did not extend to the damage caused by the pandemic. This raised the prospect of a flurry of court cases. Policyholders were left with no other means to maintain their business. They therefore sought to challenge the Insurers’ decisions in court.

The Financial Conduct Authority (“FCA”), were concerned at the approach many insurers had taken in rejecting Covid-19 related claims. The FCA therefore decided to launch its own test case against a handful of large insurers. The purpose had been to seek urgent clarity on whether the Insurers’ interpretation of the respective policies was lawful. Ultimately, it was vital to establish whether policyholders were being treated fairly or not.

What was the problem with the BII policies?

Business Interruption Insurance policies present three main issues to policyholders in the face of the Pandemic. Standard policies generally only cover loss of income where a business is closed because of physical damage. This means because of a storm, fire or flood and would not extend to losses caused by the lockdowns.

Secondly, many policyholders had paid to extend their cover to include ‘disease’. They came unstuck on the precise working of their policy. Some policies name specific diseases, which will have not included Covid-19. Others will simply refer to ‘infectious’ or ‘contagious’ diseases. Many Insurers argued that this could not apply to Covid-19. Insurers worked on the principle that this only applied to localised outbreaks. They insisted that losses caused by a national lockdown could and should not be included.

Many businesses paid to extend their cover to include losses caused by not being able to access their business premises. These policies were particularly popular with the hospitality and leisure sectors. Indeed, the Government’s directive to close their doors, significantly impacted both sectors. In some instances, this only applied to events where the Police had cordoned an area off. However, there was a huge disparity between the wording of policies and the scope for policyholders to recover their losses.

What happened?

The High Court made two important rulings.

In respect of the “disease” policies, these should have been interpreted far more widely than the insurers had done. The court found that most of these policies would indeed provide cover. Many insurers had sought to limit their cover to precise diseases occurring within a limited radius of the insured. The court disagreed with the insurers that a policy could be limited, unless the wording was very clear, to paying out for losses resulting from localised Covid-19 outbreaks only.

Equally, the court found against the insurers for many of the ‘access’ policies addressed in the claim. Such policies are much more dependent on their precise wording. Whether cover was provided, largely depended on how affected the business was by the Government’s response to the Pandemic. For example, businesses ordered to close are more likely to successfully argue that they are covered.

The decisions were subject to various appeals and the Supreme Court handed down its final Judgment on 15 January. The Supreme Court’s view was unanimous in dismissing the insurers’ appeals. The court was very clear that it would not reverse its finding. Most of the policies which it had looked at should pay out. The Court referred to the principal that the polices, as with any other contract, should be easily understandable. Only in this way could any interpretation of the policies be ‘fair’ to policyholders.

What does this mean for you?

The Supreme Court’s decision confirms that many BII policyholders, who have made claims, should now have their losses paid.

It’s worth bearing in mind that the judgments will not apply to all policies. Whether the court’s decision affects your claim will ultimately come down to the wording of your own policy. Equally, it was not the purpose of the court proceedings to look at the value of any payment. This may remain a point of dispute between policyholders and their insurer.

Have you made a claim and not yet received payment? If so, you should contact your insurer immediately. Furthermore, if you hold a policy and your insurer has not yet been in touch, we’d suggest you contact them as soon as possible.

Request a callback from Nash & Co Solicitors

We can help

Do you need any advice about your rights to claim under a policy? Perhaps you have a continuing dispute with your insurer? Or you may have questions concerning your BII policy generally. Our Commercial Disputes Resolution team would be happy to have a chat to discuss how we can help you. Give Jamie Carr a call on 01752 827014 or email his at [email protected].

Alternatively, you can ask us to give you a call back, by filling out our Contact Form.