Many businesses take out business interruption insurance each year to protect them in the event that their business operations are interrupted. The coronavirus pandemic has caused business disruption across the country in a manner which is unprecedented. Unsurprisingly many businesses which had taken out interruption insurance have sought to rely on the cover when making a claim. In response some insurers have argued the policy terms were not applicable to the pandemic situation.
As a result of the judgment made in January regarding a test case brought by the FCA on behalf of policy holders and heard in the Supreme Court, there is now some much needed clarity.
Many of the policies deal with damage to property, with basic business interruption cover linked to property damage. However, other policies are more extensive and provide for business interruption as a result of a notifiable disease within a specified distance of the business premises (“disease clauses”) and prevention of access to or use of the business premises due to public authority intervention (“prevention of access clauses”).
The Supreme Court’s decision will be helpful to many small and medium sized businesses in dealing with their insurers and pursuing claims for business interruption where they have the more extensive protection. Although it is a very long judgment, it essentially reached the following conclusions:
- Those policies with disease clauses provide business interruption cover in respect of business interruption losses resulting from COVID-19.
- Prevention of access clauses will also respond to claims and it may also be sufficient if there is only a partial closure.
- In reaching these conclusions it decided that the “but for” test is not always required or appropriate to use. It was not necessary to use it in this instance,
- Trends clauses (which are designed to ensure that the indemnity provided by insurers reflects the scope of the policy) do not allow insurers to reduce the scope of cover because of other uninsured factors contributing to the loss unless there is very clear policy wording.
- Importantly, it also concluded that losses arising before an actual trigger event under the policy were not to be taken into account. Accordingly, losses leading up to the instruction to close on 20 March 2020, were not to be used by the insurers to reduce the calculation of loss caused by the trigger event. Instead, the loss calculation was based on the normal level of business and earnings had there been no other earlier loss caused by COVID-19 based restrictions.
The decision is good news for businesses with business interruption cover. If your business has been impacted by the pandemic and you need assistance in pursuing a claim against your insurers please contact Barry Stanton on [email protected]
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.