Covid Business Interruption Insurance Claims
A Win for UK Policyholders: ‘Non-Damage’ Business Interruption
Traditionally, business insurance policies protect against loss caused by property damage. Business owners may purchase an extension to the policy to protect against business interruption, and the interruption clauses cover loss from closure caused by physical damage to the business property and neighbouring buildings to closure as a result of an outbreak of disease. COVID-19 created a new level of financial disadvantage, prompting insurance companies, policyholders, and courts to closely consider whether COVID-19 interruptions are included in the coverage.
Insurers attempted to block policyholders’ claims for payment on their policies claiming the wording did not cover such eventualities like the COVID-19 pandemic.
Because of the potentially devastating effect insurers’ ongoing refusal to pay out could have on businesses, the Financial Conduct Authority brought a claim before the courts under the Financial Markets Test Case Scheme on behalf of policy holders across the UK in the case of “The Financial Conduct Authority -v- Arch Insurance and Others,” The case was heard before the Supreme Court in November 2020 and a lengthy 114 page judgement handed down on 15th January 2021.
The court came down largely in favour of the policy holders who had previously been refused cover. There were two main types of policy clauses that the court needed to look at (and a combination of both referred to as a “hybrid clause”).
Notifiable Disease Clause – outbreak within a certain geographical limit
The Court held that when a policy sets out that cover is included for an outbreak of a ”Notifiable Disease” (of which COVID fell under the general definition) within a certain geographical area then, provided there was one instance of the disease within that area, that was sufficient to trigger cover.
In addition, the court held that a business’s losses flowed from that one identified case of COVID within the geographical area – rejecting the insurers’ argument that “but for” the national crisis (and cases occurring outside that geographical area), policyholders would have suffered no loss at all and so should not be covered.
“Prevention of Access by a Public Authority” Clause – What is a “public authority” and did restriction of access need to affect the whole business?
Here the court ruled that it was sufficient for the UK Government to simply announce the restrictions (without requiring an Act of Parliament) to trigger policy cover. This meant that the Prime Minister’s instruction statement on 20th March 2020 to various businesses to close constituted a “restriction” for insurance policy purposes.
It went on further to state that restrictions did not need to have to apply to the whole of a business for losses to be triggered. If a separate and discrete part of a business was affected by restrictions whilst another part was not – for example a restaurant that had to close but could continue with its take-out and delivery service – then policy cover should be granted for that part of the business that closed.
An Estimated £1.2 Billion in Compensation Available
The FCA indicated more than 370,000 business interruption policyholders might be eligible for compensation.
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