Business interruption insurance

Prior to the COVID pandemic, many businesses thought that they were taking prudent steps by paying for business interruption insurance. As the name implies, this is insurance which invariably attracts a higher premium and is designed to protect businesses in the event that they cannot trade due to unforeseen circumstances. Thus, when the national lockdown was imposed on March 23, many businesses thought that they would be protected having taken out the insurance.

What the businesses did not expect was for the insurers to try to claim that a global pandemic was beyond the scope of most policies and thus was not an event which should trigger payment under the policy. Many business owners were left out of pocket, shocked and baffled – thinking that such an interruption was precisely the circumstances when the insurance should pay out.

The Financial Conduct Authority (FCA) bought a test case in the High Court. The FCA's aim was to obtain clarity for as many parties as possible, as swiftly as possible.

Many policies held by business owners only covered property damage but some policies covered other causes, in particular infectious or notifiable diseases and public authority closures or restrictions. Some insurers have accepted liability under these policies but many others have not. The FCA selected a representative sample of business insurance policy wordings issued by eight insurers in an attempt to assist the some 370,000 policyholders who have been identified as having policies which may be affected by the outcome of the case.

The High Court has found in favour of the FCA in relation to a number of the sample policy wordings in that the 'disease' and/or 'denial of access' clauses did trigger payment by the insurers for losses incurred by the policy holders.

Whilst the decision is no doubt welcome news for many business owners in this situation, the FCA points out that it is a complex judgement and the High Court did not hold that the eight insurers were liable across all of the 21 different types of policy wording that were considered by the Court. The net result of this the is that each policy must be considered against the judgement to establish what that policy means.

It is possible that the insurers might appeal but any affected business owners should consider obtaining specialist legal advice to establish whether their particular policy covers them for the business interruption caused by COVID 19.

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