Have you been let down your by business interruption insurance? There is still some hope
Many businesses hit by Covid 19 have claimed under their Business Interruption (BI) policies as they have been unable to trade from their premises or have lost business because of the pandemic. However many insurers are saying that they are not required to pay out.
Whilst most of these policies require that losses arise from physical damage to property, i.e. fire or flood, there are however some policies (known as non-damage policies) that provide cover for denial of access or closure by a public authority caused by a notifiable disease.
BI policies can be varied and complex and because of the volume of claims arising from Covid-19 and their importance to the business community, the Financial Conduct Authority (FCA) recently brought a test case, to seek some clarity for insurers and policyholders alike on certain aspects of non-damage BI policy wording across a number of policies.
The High Court handed down its judgment on 15 September 2020 and ruled mainly in favour of the FCA. It analysed 21 policies from 18 insurers, affecting an estimated 700 policy types and 330,000 policyholders.
The court considered three categories of clauses:
- disease clauses
- prevention of access clauses; and
- hybrid clauses.
These provide cover where the interruption to business follows a notifiable disease within a specified radius of the business premises. Insurers argued that cover was only for a local occurrence of a disease but the Court ruled that the disease itself was the cause of the interruption and local occurrences were simply part of it.
Prevention of access and hybrid clauses
Prevention of access clauses address interruptions caused when a policyholder cannot access or use their premises under direction of the relevant authority. Hybrid clauses cover interruptions resulting from an inability to use premises following public authority restrictions resulting from a notifiable disease. The court’s rulings on the issues varied from policy to policy but it provided some general guidance:
- Prevention of access is not hindrance of access so having difficulty accessing premises would not be covered;
- A relevant authority must be legally obliged to enforce closure and prevent access;
- Partial use of premises only may amount to an inability to use, but each case needs to be considered on its own facts.
The Judgment runs to 162 pages and each clause and policy will need to be considered alongside it to determine whether a policyholder should be indemnified.
On 2 October 2020, the court gave permission to appeal and to “leapfrog” the Court of Appeal and proceed directly to the Supreme Court. Therefore, many businesses with pending claims will need to wait until that is heard before knowing whether they are covered, so there still is some hope for certain policyholders.
This update is based on our understanding as at 23 October 2020 and was prepared by Jonathan Tyler who has been in practice for over 20 years as a litigation solicitor. To contact Jonathan please call our Sevenoaks office on 01732 457575 or email firstname.lastname@example.org. Our litigation teams can also be contacted on 020 8464 2424 for Bromley, 020 7481 2422 for our London City office and 01372 750100 for Surrey. Alternatively you can email email@example.com