Business Interruption Insurance – Are You Suffering?

£2.1 Billion of Possible Claims. 370,000 policy holders or more affected. 700 types of policy.

Life is difficult enough during the Covid Pandemic without insurers trying to wriggle out of policies that were brought to provide a financial comfort blanket in times of need.  In other words, right now.

Right now has been applicable from the beginning of this year (2021) when the Supreme Court issued its analysis of numerous Business Insurance Policies affecting all types of business but specifically small to mid-sized business.  This was all analysed in the FCA’s Business Interruption Test Case FCA v Arch Insurance (UK) Ltd and others [UKSC 2020/0177]

In broad terms the Supreme Court was asked to determine the meaning of policy wording relating to:

  • Disease Clauses” (i.e. those which can be triggered by the occurrence of severe acute respiratory syndrome coronavirus 2 (“COVID-19”), typically within a specified distance of the insured’s premises);
  • Prevention of Access Clauses” (i.e. those triggered by public authority intervention preventing access to, or use of, premises as a result of COVID-19); and
  • Hybrid Clauses” (i.e. those clauses which contain wording from both Disease and Prevention of Access Clauses).

The Supreme Court also had to consider certain counterfactual scenarios in relation to the operation of the clauses in relevant policies which provided for loss adjustments (known as  “Trends Clauses”).

In a nutshell, the Supreme Court found that Covid 19 did trigger coverage of the relevant policies and that COVID-19 is an insured peril. It held that losses can be claimed from COVID-19 occurring at the insured premises (or within a specified area) and that coverage is provided where the policyholder can prove an inability to use the premises.

Additionally the Supreme Court’s analysis decided that all individual cases of COVID-19, occurring by the date of UK Government measures came into effect, were equally effective proximate causes of loss. As such, a policyholder need only establish that there was at least one case of COVID-19 within the relevant geographical area described in the policy.

In relation to the Prevention of access and hybrid clauses, the Supreme Court held that Government measures restricting travel and access need not be written into law to satisfy the requirement for there to be an inability to use the premises for coverage.  It is of note that a mere hinderance to accessing premises will not be sufficient to meet the “inability to use” condition. Partial closure may be sufficient.

As regards the Trends clauses, the Supreme Court helpfully held that they should not be used to reduce coverage for indemnity and that indemnity is calculated by reference to the turnover had COVID-19 not occurred at all.

These principles are subject to the usual court caveats of each claim being decided on a case-by-case basis and such clauses being read as part of the whole policy and not just as extracts.

Who is the claim against?

Firstly, a business must ask itself whether its broker properly advised it in relation to Business Interruption insurance – or forgot to advise it at all.  A broker may be at fault for failing to provide advice with the reasonable care and skill of a competent broker.

Alternatively it may be the insurer arguing over whether its policy covers the claim against it.  Exclusion clauses may mean that COVID-19 is not covered even if the clauses in the policy appear to say the contrary.

What loss?

Trends clauses govern the method for quantifying the financial loss by comparing the turnover of the affected period with the ‘standard’ turnover, taking the equivalent period in the previous year. The insurers have been informed by the Supreme Court that they can no longer rely on previously successful arguments permitting a narrow interpretation of coverage limiting liability for claimed losses. Losses beyond those caused by COVID-19 may now additionally be claimable.

So this should be good news for policy holders.