COVID-19 Business Interruption claims case aims to remove uncertainty for policyholders and insurers

The COVID-19 pandemic has resulted in businesses facing unprecedented financial difficulties. Many have struggled to trade as a result of their premises being forced to close on the advice of the government. The focus of where these businesses should seek support initially centred on Government backed assistance, such as the furlough scheme, and business support loans. However, that focus is now turning towards the insurance market, with the High Court this week hearing a test case which will examine to what extent insurers will need to cover COVID-19 related claims against their policies. Businesses which have Business Interruption Insurance, either as a standalone policy or as an add-on to other insurance they benefit from, should be keeping a keen eye on developments.

The test case is being pursued by the Financial Conduct Authority and intends to provide policyholders and the insurance market with greater certainty as to how COVID-19 related claims will be treated by insurers and how any resultant losses that are claimed by businesses will be assessed. In particular, the FCA’s test case is examining how Denial of Access and Notifiable Disease extensions will be interpreted in relation to COVID-19 claims against insurance policies.

• Denial of Access – Some insurance policies provide a business with cover for claims where it has suffered a loss as a result of being unable to use their premises or being “denied access” to them. In practical terms, we know that many businesses were forced to close their premises at the height of the pandemic to comply with the government’s orders. Some businesses remain closed.

 Similarly, some policies will cover claims where access to the premises is prevented by an authority due to an ‘emergency’ which endangers human life.

• Notifiable Disease – Some policies also provide a business with cover if there has been a ‘notifiable disease’ at their premises or within a specified geographical radius of the business e.g. within, say, 25 miles of a specific business address.
•  Losses – If a claim against an insurance policy is successful, the loss that the insurers will pay will need to be assessed against what the business would have earned had the interruption to the business not occurred. A key issue that needs to be determined is whether that will be, (i) what the business would have earned if there had been no Covid-19 pandemic whatsoever; or (ii) what the business would have earned if it could have stayed open during the Covid-19 pandemic.

Businesses will no doubt be keen for their losses to be assessed under (i) and insurers under (ii).

The FCA is providing helpful information and documents relating to the test case on its website at https://www.fca.org.uk/firms/business-interruption-insurance#latest-updates

With the High Court hearing taking place this week and next week and with a judgment anticipated to be handed down in September 2020, we will be keeping a watching brief on developments and updating our guidance in the future.

Practical Steps

With estimates suggesting that up to 370,000 different policyholders may have business interruption insurance that could be affected by the results of this test case, it is important that businesses take steps to determine whether they have business interruption insurance and ensure that claims against their insurance policies are identified early. Sensible practical steps for businesses include:

• Check your insurance policies to see if you have any cover for business interruption claims. If you are uncertain, speak to your insurance broker, if you have one. For businesses which have group structures such as parent companies or the like, ensure that you check all group company policies as it may be possible for a company to find cover under a group company’s insurance policy.
• If you have a policy which contains business interruption cover and you believe that you may have a claim for losses suffered by your business, notify your claim to your insurers as quickly as possible via the appropriate channels as specified under your policy – insurance policies are likely to contain time-sensitive provisions with regard to notification of claims.

Chris Thompson of IBB Law LLP has acted for policyholders and insurers (including Lloyds of London Syndicates) advising on the interpretation of insurance policy wordings and on all aspects of insurance advice and would be keen to assist and advise businesses of all sizes in respect of business interruption claims or any other types of claim against insurance policies. Speak to Chris on 01895 207285 or email chris.thompson@ibblaw.co.uk