Did your business have to close or remains closed due to COVID-19? If so, there is every chance a Business Interruption claim may be a viable option for you.
For businesses, the pandemic has brought perhaps unexpected opportunity but also untold disruption too. Where some businesses have favoured well from the pandemic, the Government controls have caused widespread disruption resulting in significant financial loss for businesses, particularly for small and medium-sized enterprises (SMEs) and even for those who pre-pandemic we would never have considered would ever shut their doors.
The FCA – in the policyholder’s corner
In response to a significant number of insurers not dealing with Business Interruption claims positively, the FCA brought a test case in the High Court seeking legal clarity on the meaning and effect of certain Business Interruption insurance policies and to ensure fairness is achieved for policyholders, against insurers and their intermediaries.
The High Court gave Judgment finding mainly in favour of the FCA, in that a number of representative business interruption insurance policies will cover financial losses caused by Covid-19. Insurers could now be expected to incur significant financial liabilities in meeting claims.
Following the Judgment, the FCA is reported to have hoped to reach an agreement with the insurers by the end of September 2020 on the interpretation of some important elements of the Judgment affecting which small businesses get paid and how much. Subsequent negotiations over which policies should now pay could not be agreed and the FCA and some insurers filed a “leap frog” appeal to the Supreme Court in an attempt to clarify some of these points within the Judgment.
The FCA has been quoted to say that they will continue discussions with insurers and action groups, to find a solution which resolves the outstanding issues as soon as possible to enable pay-outs on eligible claims. Albeit the FCA reportedly believes that clarity was provided in the initial judgment handed down on 15 September.
So, what do we know so far?
The Court examined 21 policy wordings from 8 insurers that cover business interruption when insured premises cannot be accessed because of public authority restrictions, in the event of a notifiable disease within a specified radius — and hybrid wordings.
Whilst the FCA has sought to appeal the recent judgment it does provide insightful clarity on what can be expected. The 3 broad categories of wording analysed were:
- “Disease Clauses”
These provide cover in respect of business interruption arising from the occurrence of a notifiable disease within a specified radius of the policyholder’s premises and “Hybrid Clauses” (which require both restrictions imposed on the insured premises and the occurrence of a notifiable disease) will cover COVID-19 related losses.
- “Prevention of Access”
Prevention of Access and similar clauses. These types of clauses provide cover where there has been a prevention or hindrance of access to, or use of, the insured premises as a consequence of government or local authority action and may only provide cover for narrow, localised Covid-19 losses. The applicability of such wording will be restrictive and will of course fall down to the specific wording and the circumstances in which the authorities affected the commercial policyholder.
- “Hybrid clauses”
This linked the cover for business interruption to a combination of disease and denial of access cover. The Court allowed a wider interpretation of the disease section of the wording but a narrower application of the prevention of access requirements, in keeping with its conclusions as discussed above.
So, as we can see from the above, things are progressing on this front. If your business did have to close or still remains closed due to COVID-19, then there is every chance a Business Interruption claim may be a viable option for you.
Published 18th November 2020