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Insurance industry to cover business losses caused by COVID-19

View profile for Keith Songhurst
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Insurance industry to cover business losses caused by COVID-19

The restrictions implemented in response to the coronavirus pandemic continue to devastate businesses across the nation and many have been turning to their insurance policies for some much needed relief.

Check your policy document for a business interruption provision and whether you are eligible to recover under the terms. 

Supreme Court decision - FCA v Insurance Industry (FCA v Arch Insurance (UK) Ltd and others [2020]

On 15th January 2021, the Supreme Court handed down its judgment in the test case brought by the Financial Conduct Authority (FCA) on behalf of UK based small and medium businesses.

The COVID-19 pandemic has forced the UK Government to introduce public health measures which have resulted in significant losses for countless businesses. Many have consequently turned to their business interruption insurance policies to indemnify them for their losses. 

Business interruption insurance is intended to cover policyholders for loss of income during periods when it cannot carry out business due to an unexpected event.

Insurers have often declined cover, insisting that the policies do not respond to the economic impact of the pandemic and that only the most specialist policies provided cover for the unprecedented restrictions. Consequently, the FCA stepped in to represent the interests of the policyholders and brought the case against the UK Insurance sector to determine the parameters and validity of claims brought under business interruption insurance policies.

The outcome

The Justices ruled unanimously in favour of the regulator, where a selection of common insurance policies meant that insurers had to cover the losses incurred by business caused by the coronavirus restrictions.

The Supreme Court specifically determined the proper interpretation of four types of clauses commonly found in many business interruption insurance policies:

  1. Disease Clauses – cover for business interruption caused by an outbreak of disease within the vicinity of the premises;
  2. Prevention of Access Clauses - cover for business interruption caused by public authority intervention preventing access to, or use of, the business premises;
  3. Hybrid Clauses - hybrid wordings combining both a requirement for both outbreak of disease and public authority denial of access to premises;
  4. Trends Clauses – cover for business interruption loss to be quantified by reference to what performance of the business would have been had the unexpected event not occurred.

The Supreme Court held that each of these categories of clauses should properly be interpreted as providing cover for business interruption which can be shown to be caused by COVID-19.

This ruling will provide welcome relief and certainty for thousands of businesses. It is estimated that as many as 370,000 small businesses are entitled to receive a payment for coronavirus related losses where the Business Interruption component of their insurance policy should have covered such losses. The total value of such claims is estimated to be at least £1.2 billion.

How can you make a claim?

The ruling does not signify a blanket acceptance of business interruption claims, and individual policies will need to be reviewed against the Supreme Court judgment.

Check your policy document for a business interruption provision and whether you are eligible to recover under the terms. The business interruption provision should specify the limit on the amount you are able to recover and how you should make a claim.

If you think you may have a business interruption claim against your insurer, you must notify them promptly. A failure to notify your insurer of your claim without delay could result in your insurer legitimately refusing to indemnify you. 

Find out whether your insurer has a version of the claim template that they require you to complete, and fill this out with as much information as possible to assist your insurer to promptly settle your claim.

If you have insurance purchased through an insurance broker, speak to them to see whether you have a valid business interruption provision which covers coronavirus related losses, and specifically how you should notify your insurer.

If you would like advice, contact our expert Dispute Resolution team on 01206 217359 or send an enquiry here.

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