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Business Interruption Insurance update - is my business covered? Five key points

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Business interruption (BI) insurance policies protect businesses where a particular prescribed event causes loss. As the impact of the government imposed restrictions in response to the COVID-19 pandemic took effect, many UK businesses turned to their BI policies only to have their claims rejected.

In response to this, the Financial Conducts Authority issued proceedings on behalf of the policyholders against eight insurers over the interpretation of their BI policies. In September 2020, the High Court found broadly in favour of the policyholders but, given the economic and legal significance of the decision, the Financial Conducts Authority and six insurers appealed a number of issues to the Supreme Court.

On 15 January 2021, Judgment was handed down by the Supreme Court. The Judgment found again substantively in favour of the BI insurance policyholders. Here are five points that policyholders should be aware of:

  1. The Supreme Court determined that the ‘disease clauses’ it had been asked to consider provided cover for losses arising from COVID-19. ‘Disease clauses’ state that an insurer should pay out if a business is closed due to certain infections. These clauses provide cover for losses resulting from the occurrence of a disease within a specified radius of the insured premises. The Supreme Court decided that individual cases of COVID-19 within the specific radius could be the legal cause of the losses suffered by a business.
     
  2. The Supreme Court also determined that the ‘prevention of access’ clauses it had been asked to consider should be interpreted so as to include the government mandated restrictions. ‘Prevention of access’ clauses state that an insurer should pay out if something is preventing a business from accessing its premises. The Supreme Court decided that restrictions such, as those imposed by the government in March 2020, could apply and held that if a business was forced to partially close, such as a restaurant closing its seating area, it could still be determined as a ‘prevention of access’.
     
  3. As part of the proceedings some of the insurers argued that in order to succeed with a claim, the insured must show that their loss would not have been suffered, had it not been for the insured peril. They also argued that they should not be liable for losses the insured had suffered as a consequence of the pandemic. These arguments were rejected, as the Supreme Court held that the policy may still respond even if the incident ie an incident of COVID-19 within a specified radius of the insured’s property was part of a large number of connected events and those events also contributed to the losses.  
     
  4. Despite the positive headlines, there remains uncertainty for BI insurance policyholders as to the extent to which there will be pay-outs from the insurers. Whilst the decision is binding on the insurers whose policies were considered as part of the case, there will remain issues of causation and loss to be determined and the right of each policyholder to claim for their losses will remain subject to any limitations or restrictions set out in each specific policy.
     
  5. In any event, it is important for any policyholder who suspects that the may have a BI claim to take prompt action. Insurers may seek to avoid liability on the basis that they have not been promptly notified of an event giving rise to a claim. There may also be other ways that a policyholder can recover their losses, including by pursuing a complaint to the Financial Ombudsman Service so they should not simply accept at face value any rejection of their claim.

If you would like to understand more about the case and how it may affect your business, please contact Jonathan Cole, a Senior Associate in the Commercial Dispute Resolution team at Goodman Derrick at jcole@gdlaw.co.uk.

Jonathan Cole

Jonathan Cole specialises in a broad range of commercial disputes including contractual issues, professional negligence claims, company/partnership disputes, fraud claims, consumer disputes and insurance claims.

He has also acted for numerous clients in insolvency related matters, including breach of duty and wrongful trading claims.

Goodman Derrick – Dispute Resolution

Goodman Derrick provides constructive solutions to our clients’ disputes by giving practical, intelligent and tailored advice, the group:

  • recognise our responsibility to promote our clients’ objectives via the most direct and cost effective means
  • regularly represent our clients across a wide spectrum of courts and tribunals
  • ensure that our clients are fully aware not only of the prospective benefits but also of the potential risks and likely costs of going to court or arbitration
  • works extensively in the UK and internationally
  • takes pride in its ability to offer practical and commercially sound solutions

More information

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.

If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.