Test case decision offers hope to those with Business Interruption insurance

Test case decision offers hope to those with Business Interruption insurance

Wednesday, 23 September 2020

Test case decision offers hope to those with Business Interruption insurance

The High Court’s decision on 15 September in the COVID-19 insurance test case is encouraging. The ruling has increased the likelihood that Business Interruption insurance policyholders could receive a contribution to the cashflow shortfall caused by the pandemic. The test case, brought by the Financial Conduct Authority (FCA) on behalf of potentially up to 370,000 policyholders, concluded with the High Court finding in favour of the arguments advanced for policyholders on the majority of the key issues.

The impact of the pandemic has, of course, been huge for many businesses and will likely be with us for some time. Those with Business Interruption insurance whose business was affected by the pandemic assumed their policies would cover the losses incurred. Indeed, there has been a large number of claims under such policies, particularly where there are infectious or notifiable diseases clauses and/or non-damage denial of access and public authority closures/restrictions clauses. In some cases, insurers have accepted liability under the policies but, in many other cases, insurers have disputed liability. The aim of the test case was to clarify key issues of contractual uncertainty by selecting a representative sample of policy wordings issued by eight insurers.

The judgement says that most, but not all, of the ‘disease/denial of access clauses’ in the sample provide cover. Clearly, this is a helpful ruling for the Business Interruption insurance policyholders. However, each claim will still depend on the wording of the individual contract and the specific facts of the case, and the policy will need to be considered against the detailed judgement. The activities of the business itself will also be taken into account; retail businesses who were able to continue trading online or restaurants who offered a takeaway service may have their claims denied.

In addition, parts of the ruling may yet be appealed by either the insurers or the FCA. To a certain extent, the approach taken by individual insurers will also have an impact. I’m already aware of businesses who’ve been contacted by their insurer since the High Court decision.

In summary though, the High Court decision is a ‘ray of light’ for those businesses who have taken out Business Interruption insurance policies and for whom the future may remain uncertain. Having said this, it’s a sobering thought that the majority of businesses will receive no claim since, whilst generally insured, they may not have invested in Business Interruption insurance.

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Stuart Swanson



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