Business Interruption Insurance

On 15 January 2021 the Supreme Court delivered one of the most important judgments handed down in the last 12 months. Following the impact of the COVID-19 pandemic, many businesses both small and large suffered huge losses from March 2020.

Over the years, many businesses have been paying for Business Interruption Insurance, without ever using it. When many businesses were closed during the first lockdown (March 2020) they realised that they may be able to use their Business Interruption Insurance to claim for potential losses of profit and additional expenses suffered as a result of the business being closed. This type of cover was typically used if businesses closed due to fire or flood damage.

Initially, it was uncertain whether businesses could claim for being closed due to a worldwide pandemic. Therefore, a test case by the Financial Conduct Authority (FCA), went to the High Court in September 2020 on behalf on the insured businesses.

The High Court found that most of the sample clauses submitted by the FCA would cover losses caused by a COVID-29 pandemic. This decision was then appealed to the Supreme Court.

The Supreme Court were looking notably at the infectious and notable disease clauses and also the prevention of access clauses. There were some insurers who did accept liability under these two causes, however, the vast majority of insurers did dispute liability. Therefore, the insured felt like there was a lack of clarity and certainty regarding these clauses.

The FCA took a sample of 21 types of policies with 8 different insurers. This affected approximately 370,000 policy holders under 700 types of policies with 60 types of insurers.

Following a Hearing in late 2020, the Supreme Court handed down a judgment on 15 January 2021. Whilst the judgment is complex and deals with a multitude of issues, two key factors are that policy holders that have disease and prevention of access clauses (within the sample of cases provided) are covered under the circumstances of the COVID-19 pandemic and the insurers must cover the insured losses.

The Supreme Court also ruled that there may be cover available for partial closure of premises as well as full closure of premises, whilst also covering mandatory closure orders which are not legally binding. The insurers were also unable to reduce claims because losses would have been reduced in the event of the pandemic.

This ruling by the Supreme Court is vital for small to medium businesses who have suffered extreme losses due to closures of premises or staff being off ill for large periods of time resulting in the business not being able to perform to its normal capabilities.

Moving forwards, insurers are likely to change policy wording to contract out of losses caused by a future pandemic, or the premiums will increase substantially if losses are to be covered by the policy.

If you would like further clarification or wish to seek legal advice regarding Building Interruption Insurance, please contact solicitor Hayden Mellowship in the Litigation Department on 01827 311 411 or [email protected]