Business interruption insurance – Final decision on test case – A lifeline for small businesses
19 May 2021
Earlier in 2021, the Supreme Court released its judgment on the test case brought by the Financial Conduct Authority (FCA) seeking legal clarity on the meaning and effect of certain business interruption (BI) insurance policy wordings.
The effects of the Covid-19 pandemic, and the restrictions imposed by government, has led to a significant level of financial loss for businesses. We are aware that a large number of businesses attempted to make a claim for these losses under their BI insurance policies however the majority of these claims were rejected with insurers taking the stance that only a small number of specialist policies would cover Covid-19 related claims.
The FCA commenced High Court proceedings in June 2020 to seek clarity on the wording of BI policies and to ensure that policyholders are treated fairly by insurers and insurance intermediaries. As we reported in November 2020, the High Court found that most, but not all, of the sample policy wordings could provide cover of the financial effects of Covid-19 however, the court did not find that the defendant insurers were liable across all of the 21 different types of policy wording in the sample and each policy would have to be considered based on its specific wording.
The FCA was given permission to appeal direct to the Supreme Court (missing out the Court of Appeal) and this appeal was heard across 4 days in November 2020. The judgment, which has been given today, is complex but in summary it provides that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover.
This will mean that more businesses will have valid claims for Covid-19 related losses and some pay-outs will be higher. The FCA has confirmed that it will be working with insurers to ensure that they move quickly to pay claims, making interim payments where possible. Insurers are encouraged to communicate directly and quickly with businesses that have already made claims that are affected by the judgment.
It is still the case that each BI insurance policy will need to be considered against the detailed judgment to work out what it means for that policy. Should you be in doubt as to what your Insurance policy may or may not cover you should contact a member of the Dispute Resolution team on 01254 828300. If you wish us to take your claim forward we can often do this on a fixed fee basis.
