Business Interruption Insurance

At the start of the pandemic, when the Government issued its ‘lockdown’ requirements, many businesses looked to their policies of insurance to see if they had any cover available for what was at that stage an unknown period of commercial hibernation, and potentially zero income.

Apart from those global businesses which had been badly hit by the SARS pandemic back in 2003, your average business owners are unlikely to have sought bespoke business interruption insurance cover against the risks of a pandemic, or even bothered to look closely at the provisions of their existing policy in relation to business interruption.

Suddenly, business owners were seeking to find out if their policy covered them for loss of profit.  It became apparent very quickly that there is a wide variety of policy wordings applicable to business interruption.  Some policies explicitly covered epidemic or pandemic events, whereas at the other end of the scale, some policy wordings required there to be physical damage to the premises for the business interruption provisions to kick in. Many policies only provided cover if there was actually a contagious disease at the insured premises.

Within those extremes there are many different provisions, capable of interpretation and debate in support of or against cover, depending upon whether you represent the insurer or the insured.

Insurers are conscious of reputational issues, the public’s general perception that insurers will seek to avoid a claim and pull down the shutters to discourage claims.

In an attempt to secure clarity for the thousands of businesses who have been affected by COVID-19, and whose insurance claims have been declined by their insurer, the Financial Conduct Authority launched a test case.  Having apparently reviewed more than 500 different policy wordings, from over 40 insurers, it had identified 17 specimen policy wordings which covered the majority of the pending business interruption cases currently in dispute over COVID.

The test case was heard over 8 days in the High Court in late July, with the aim that the judgment would bring clarity to all those affected. It was hoped that the test case would avoid the need for businesses, who are already cash-strapped, to bring their own, separate litigation against their insurers, which might otherwise take 12 months or more to get to trial.

Many insurers have written to their policy holders whose claims had previously been declined, to say that they will await the decision of the test case, and will carry out a review of their decision once the Court has given its ruling.  If the Court finds that some of the policy wordings would provide cover for a claim as a result of COVID, then this will represent a financial lifeline to many businesses who are struggling to survive and adapt to prevailing conditions during lockdown ‘lite’.

The Judges indicated at the end of the hearing that they were aiming to deliver their judgment by late September.  Of course, there is the prospect that an appeal may follow judgment.  In that event, it is anticipated that the appeal will leapfrog the Court of Appeal and be heard by the Supreme Court.

The information contained in this article provides a general overview of the current position in relation to the subject matter.  It does not constitute legal advice and should not be relied upon in relation to any specific legal problem.  If you believe you may have a claim in relation to your insurance please contact our specialist litigation team who will be happy to advise you.