Lorna Trueman, Head of Dispute Resolution, Bray & Bray Solicitors, discusses the ruling on business interruption insurance policies and offers advice for businesses on what they need to do now.
Many thousands of businesses forced to close their doors or severely restrict their trading activities due to the coronavirus pandemic probably heaved quite a sigh of relief following the court judgment that seemed to pave the way for some business insurance pay-outs.
The impact of COVID-19 has placed a heavy toll on many businesses – from hairdressers and barbers, tattooists and beauticians to hospitality and the wider retail sector. Business owners have been desperate to access all the support they can get. However, some were shocked and concerned for the future of their businesses when their policies that included business interruption protection didn’t look set to pay out, despite circumstances being completely out of their control, with lockdowns dictated nationally.
While the fairly recent Supreme Court ruling in favour of policyholders may seem like a rare piece of positive news for businesses, unfortunately some may have more work to do to make a successful claim.
Gaining clarity on business interruption policies
Many insurers argued that their business interruption policies did not cover the impact of the national lockdown imposed in response to the COVID-19 pandemic. This was despite many policies including disease and prevention of access clauses.
The Financial Conduct Authority (FCA) brought a test case against eight insurers who were leading providers of business interruption policies at the High Court to seek maximum legal clarity over the wording of a variety of standard business interruption policies and the basis on which insurers should be making pay out decisions. The court found largely in favour of policyholders and a subsequent appeal was heard at the Supreme Court where the FCA aimed to clarify more details.
In January 2021, the Supreme Court found that policyholders should, in many cases, be able to claim from their insurers for losses arising due to the Covid-19 pandemic and the regulations put in place as a result. The court considered areas such as whether the legal status of the initial national lockdown should have an impact on claims, and whether losses should be calculated at pre- or post-pandemic trading levels. The court ruled that cover may be available for both full and partial closure, whether or not the closure orders were legally binding, and that claims should not be reduced on the basis that losses were inevitable because of the pandemic anyway.
Read the full judgement here.
What businesses can do now
While the FCA has said it will work with insurers to ensure that valid claims are paid out as soon as possible – offering a real lifeline to many businesses – this may not be the end of the process for some.
The court decision doesn’t necessarily guarantee pay outs for all businesses that have made a claim under their insurance, because claims will still need to be assessed by insurers on a case-by-case basis, and the ruling doesn’t cover all policy types.
In a recent case Rockliffe Hall Limited v Travelers Insurance Co Limited  EWHC 412 (Comm) (determined after the Supreme Court ruling), the court struck out a claim for COVID-19 related business interruption losses because they said the policy provided cover for “infectious diseases” that was defined in an exhaustive list and COVID-19 was not listed.
If you have submitted a business interruption claim and it is being disputed, seek legal advice on your position as soon as possible, especially in more complex cases.
If you are thinking of making a business interruption claim, there are actions you can take to make sure you stay on top of the situation:
- Obtain and seek advice on your policy wording; your broker or solicitor should be able to advise on this
- Check out the resources published by the FCA, including a policy checker and FAQs, and draft guidance for policyholders on how to prove the presence of coronavirus – a key condition in some policies.
- Collate and keep evidence of the impact Covid-19 has had on your business to back up any claim for business interruption.
Get in Touch
Let the Bray & Bray Disputes Resolution Team take some of the work off your hands. We can provide guidance and assistance in dealing with disputed business interruption insurance claims, wherever you currently are in the process – email firstname.lastname@example.org or call us on 0116 254 8871.