COVID Business Interruption Insurance Claims FAQ: Good News for Businesses

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There has been a great deal of uncertainty since the onset of the pandemic as to whether or not businesses could claim under their business interruption (BI) insurance for the losses that they have suffered as a result.

The Supreme Court’s judgment handed down on 15 January 2021, which substantially ruled in favour of the FCA’s test case against a number of insurers that offer BI insurance, will go some way to providing much-needed clarity on who may bring a BI claim, and Brecher may be able to help you and your business in bringing such a claim.

In this FAQ we explain the Supreme Court’s decision and whether or not you may be able to claim for losses that you have suffered.

Please see our FAQ below:

Is this good news for businesses?

Yes, this is very good news for businesses, particularly small and medium-sized enterprises (SMEs). The Court substantially ruled in favour of the FCA’s test case and went further than the original High Court judgment in some areas.

Importantly the Court decided that in considering the content of the policies “the person to whom the document should be taken to be addressed is not a pedantic lawyer who will subject the entire policy wording to a minute textual analysis”. Instead it is “an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting”.

Which policies are affected?

The Court considered policies providing cover which included three types of clauses:

• Clauses in relation to infectious diseases;
• Clauses in relation to prevention of access; and,
• Hybrid clauses with reference both to the incidence of disease and the prevention of access to business premises.

The court considered the specific wording of several different policies offered by different insurers. While, the extent to which a claim may be made will depend on the specific wording of your policy, the Court substantially sided with the FCA’s test case and if your business took out a policy containing such clauses, you may well be able to bring a BI claim.

Which insurers were involved in the test case?

The following insurers were included in the test case:

• Arch Insurance (UK) Limited;
• Agenta Syndicate Management Limited;
• Ecclesiastical Insurance Office PLC;
• Hiscox Insurance Company Limited;
• MS Amlin Underwriting Ltd;
• QBE Limited;
• Royal & Sun Alliance Insurance PLC; and,
• Zurich Insurance PLC;

Some of the policies were said to exclude liability, but most did not and would provide cover were a claim brought by a policy holder.

Will policies written by other insurers be eligible for a claim?

A policy does not have to be written by one of the above insurers in order for a claim to be brought. The test case was not intended to be totally comprehensive.

It is estimated that, in addition to the particular policies chosen for the test case, some 700 types of policies from 60 different insurers and 370,000 policyholders could potentially be affected by the outcome of the Supreme Court judgment.

Will my business be able to bring a claim?

Whether or not you can bring a claim will depend on the wording of your policy. Your business will also have to show that it suffered losses as a result of the pandemic. The Court mentioned in its judgment that some businesses, such as takeaway restaurants, may have been unaffected or even made more money as a result of the shutdown.

Where the premises of a business were forced to close partially, the extent to which a claim may be made will depend on the facts. For instance in the case of a restaurant which serves both customers who eat inside the premises and which operates a takeaway service, it would be necessary to ascertain what proportion of the business of the restaurant was affected by the shutdown.

The Court also held that interference or disruption did not have to mean a complete cessation of business or activities, which was an argument advanced by the insurers in question.

Would your business have incurred these losses even if it had not been subject to mandatory shutdown?

The insurers also advanced an argument that the value of losses arising from the shutdowns should be discounted to reflect that a downturn may have been likely in any case as a result of the COVID situation, even had the shutdowns not occurred.

The Supreme Court rejected this, and said that “losses should be assessed on the assumption that there was no COVID pandemic”.

Therefore adjustments should only be made to reflect circumstances affecting the business which are unconnected with COVID.

What should I do next?

If you have one of the affected policies with one of the affected insurers, you should be able to bring a BI claim.

If you have some other kind of BI policy, you may be able to bring a claim. However, the judgment does not mean that all claims will be paid in full.

One option for small businesses is to bring a claim through the Financial Ombudsman Scheme, however your business must have fewer than 10 employees and a maximum annual turnover or balance sheet of €2 million. Awards are also capped.

Alternatively, Brecher would be happy to assist you in bringing a BI claim either individually or as part of a group to seek recovery of the losses you have suffered. If you require assistance please do get in touch with James Clarke, Sonia Jordan, Nick Cook, Nicholas Evans or Ben Rutledge.