Covid-19 could easily be described as a big interruption to normal life, but when it comes to your business will your insurer agree that an interruption has occurred?
What is Business Interruption Insurance?
Business interruption insurance (BII) is meant to provide cover for losses sustained to a business due to an unexpected event. The insurance aims to put your business back in the same trading position it was in before the event occurred.
A typical BII policy would cover property damage caused by fire or a natural disaster and basic cover for business interruption. There are some policies that also include such things as infectious or notifiable diseases and denial of access within their cover.
Can I make a claim and will it be successful?
In some cases, insurers have accepted liability under BII policies, but unfortunately in a lot of cases there has been dispute between the insurer and the policyholder, leading to widespread concern from policyholders about the lack of clarity and certainty on some contractual clauses.
The Financial Conduct Authority (FCA) has said that this lack of clarity and certainty is leading to increasing disputes between policyholders and their insurers, which is impacting the basis on which some insurers are making decisions in relation to claims that are made.
On 15 September 2020 the court handed down their judgement in a test case brought by the FCA. The aim of the case was to clarify key issues of contractual uncertainty for policyholders and insurers.
The FCA did this by selecting a representative sample of policy wordings issued by eight insurers. The FCA put forward policyholders’ arguments to their best advantage in the public interest. The court found in favour of the majority of the arguments put forward by the FCA.
What does the judgment mean?
In order to establish liability, the FCA had to argue that the “disease” and/or “denial of access” clauses in the sample policies would provide cover in relation to Covid-19, and that the trigger for cover caused policyholders’ losses.
The judgment says that most, but not all, of the “disease” clauses in the sample provide cover. It also says that certain “denial of access” clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the government response to the pandemic, including for example, whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.
The test case has also clarified that Covid-19 and the government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.
The case has removed the need for some policyholders to resolve a number of the key issues individually with their insurers.
However, on the 2 October 2020 a number of insurers were granted ‘leapfrog’ certificates, which entitle them to apply to the Supreme Court for permission to appeal. Further details of the test case can be found on the Financial Conduct Authority website: www.fca.org.uk.
In light of the above, it is important that each individual policyholder contacts their insurer to ask them to consider any current or previous claims in light of the current position of the test case.
Ian Harlock-Smith, Director