Hope to 370,000 Businesses Impacted by Insurers Refusing Business Interruption Cover

There may be light at the end of the tunnel for businesses who have had business interruption claims rejected by their insurer. The FCA has taken up the fight on behalf of struggling policyholders by taking a test case to the High Court.

Our Insurance Law Team have been closely watching the progress of the case. On 15 September 2020 Lord Justice Flaux and Mr Justice Butcher handed down their judgment in a case which had been expedited through the High Court.

The Coronavirus pandemic has had a significant impact on business globally. As the Government has scrambled to provide support to businesses across the country with the Furlough Scheme, Bounce Back Loans and grants. Many SME’s had thought that they were protected and had cover in place through a business interruption policy.

As the country entered lockdown we were all told to stay at home. Businesses were closed, staff were sent home and many SME’s were effectively mothballed.  Businesses have faced substantial losses and have been placed under immense financial strain to stay afloat. Many business owners looked to their business interruption insurance to help them through difficult times.  The reality was that claims were met with a blanket rejection by insurers.

The FCA test case was brought to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. The judgment is a significant step in resolving the uncertainty being faced by policyholders.

Where business interruption policies include cover for infectious or notifiable diseases (‘disease clauses’) and non damage denial of access and public authority closures or restrictions (‘denial of access clauses’) some policy holders have seen disputes of liability from insurers.

Some 370,000 policy holders are impacted by such clauses. The court considered a sample of 21 different policies from 8 major insurers. The 162 page Judgment has brought some clarity to those effected.

Of those policies considered the court found that :-

• Most (but not all) of the disease clauses in the sample provide cover;
• Some of the denial of access clauses in the sample provide cover (but this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic);
• The COVID-19 pandemic and the Government public response were a single cause of the covered loss. (this is important because it is a key requirement for claims to be paid even if the policy provide cover).

The test case does not cover all potential disputes that may arise with insurers. It does however, provide some clarity in relation to key contractual clauses which may have been a barrier to successful claims.

The judgment may yet be appealed.  A potential appeal does not prevent a claim being settled with an insurer before any appeal.

The Insurance Team at Chadwick Lawrence are specialists in dealing with disputes with insurers. Whilst some clarity has been provided the law can be complex. Dan Hirst is a Partner within the Litigation, Resolution and Recovery Team at Chadwick Lawrence who have advised clients who have had business interruption claims rejected. Dan says ‘We recognise the unexpected financial strain that our clients have faced throughout these incredibly difficult times. We are proud to be able to continue to support our clients, in circumstances where they feel that they have been let down by their Insurer. The FCA test case will hopefully bring relief to some of those who have had a business interruption claim rejected.”

The full judgment can be viewed on the FCA website here