Business Interruption Insurance test case: High Court finds in favour of policyholders

As a result of the guidance and subsequent formal restrictions imposed by the UK Government to curb the spread of Covid-19, numerous businesses had to close and stop trading.

Many of these businesses had business interruption insurance policies, intended to cover losses in profits as a result of trading interruptions. Most small business policies focus on property damage and business interruption resulting from this, which would not cover interruptions caused by pandemic. However, despite more comprehensive policies including “disease clauses” and “denial of access” clauses, many insurance companies disputed claims and refused to cover losses.

Small businesses found themselves faced with uncertainty and significant trading losses, despite paying premiums amounting to thousands of pounds over the years.

Following hundreds of complaints, and due to the number of businesses affected, the Financial Conduct Authority (FCA) brought a test case to challenge the stance taken by the insurance firms. The FCA selected a sample of policy wordings from business interruption insurance policies used by eight insurers to clarify whether the claims could be denied under the contract.

This week, the High Court handed down its judgment which substantially found in favour of the arguments presented by the FCA.

It was found that most (but not all) of the disease clauses provided cover and certain denial of access clauses also provide cover, but this depends on the exact wording of the clause. Each policy will need to be considered against the detailed judgment. The test case has removed the need for policyholders to resolve many key issues of contractual uncertainty and causation individually with their insurers.

Policyholders with affected claims can expect to hear from their insurer within the next 7 days.

While this will be welcome news for many small businesses, it is expected that the insurance companies will appeal to the Supreme Court. Any appeal does not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known, and the FCA are putting pressure on the insurance companies to move the relevant claims forward.

If you have business interruption insurance, the policy should include wording that sets out how the insured losses should be quantified.

Should you be contacted by your insurance company to make a claim and need our assistance in quantifying the claim, please get in touch with your Barnes Roffe contact partner

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