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COVID-19 and business interruption insurance claims: what you need to know

On 15 January 2021, the supreme court ruled in favour of businesses receiving pay-outs from their business interruption insurance policies due to the impact that Covid-19 closures had on their bottom line. This means that many businesses, potentially thousands, will now be able to successfully claim for their Covid-19 related losses and bounce back as a result.

The supreme court handed down their judgment following the high court test case brought by the FCA back in June 2020, looking for clarity for policyholders as to whether they are able to seek a claim under their business interruption cover. The FCA has now released a 112-page summary of the key aspects of the judgment and next steps for policyholders to take in light of the supreme court ruling.

Here, we outline how to determine if your policy will protect your business, and the background behind the litigation.

What did the supreme court decide in relation to business interruption claims?

In summary, the supreme court confirmed that policyholders will receive cover under disease clauses, and also took a broader view of prevention of access and hybrid clauses (those referring to both prevention of access and a notifiable disease).

The supreme court judgment also brought clarity as to how exactly claims should be calculated, also making reference to trends clauses. Trends clauses usually allow for adjustments to the value of the claim based on the fact that business interruption losses should reflect any wider trends or circumstances that the business find themselves in. The judgment dismissed this and instead made clear that the pandemic should be disregarded in relation to trends clauses. This means insurers will be unable to reduce the indemnity because of the wider effects of Covid-19.

While the judgment carves a much clearer path for both policyholders and insurers, there are still some issues that will need to be assessed on their own merits, such as aggregated losses. However, this judgment does mean that a significant amount of businesses will now be able to make claims or update their claim in line with the supreme court judgment.

The business interruption insurance litigation background

Test case litigation was brought against major insurance companies by the city regulator, The Financial Conduct Authority (FCA). The FCA brought the court proceedings in its capacity as the regulator of the defendant insurance companies.

It was the first time that court action of this nature has been carried out by the FCA since the regulator was established in 2013. It’s also the first time the financial markets test case scheme has been used. The test case scheme can be used for claims which raise issues of general importance and where immediately relevant authoritative English law guidance is needed. The reported high court case does therefore warrant the label ‘ground breaking’.

On the 15 September 2020 the high court ruled in favour of the FCA in a case referred to as The Financial Conduct Authority v Arch and Others. The FCA estimated that around 370,000 businesses with business interruption insurance who were affected by Covid-19 could receive a total of about £1.2 billion as a result of the test case litigation.

The FCA brought the high court litigation as many insurers had refused claims made by UK business owners who thought that their business interruption insurance policies would cover them for the financial loss as a result of the global Covid-19 pandemic, and enforced closures and restrictions on their businesses. Many of the insurers responded by asserting that their business interruption insurance policies did not cover a government-imposed lockdown.

Given the impasse between the business owners holding business interruption insurance and their insurers, a test case was the best way forward. The FCA brought litigation designed to ensure that the court clarified the extent of insurers’ liability under business interruption insurance policies using a sample of twenty-one policies with eight insurers.

The high court was broadly in favour of the arguments advanced by the FCA on behalf of the business interruption policy holders.

Tips on making a business interruption claim

If you have made a business interruption claim, then our dispute resolution solicitors recommend that:

  • You take legal advice on the relevance of the supreme court judgment to your claim and your insurance policy wording.
  • You review any current settlement offer, in case it needs to be updated following the judgement.

If you are a small business with business interruption insurance cover and you are contemplating bringing a claim under your policy or need to revisit a previous claim following the supreme court judgment, our legal team can support you. We’ll conduct an assessment to provide your business with the best prospects of bringing a successful business interruption claim, that is settled and paid promptly, so that your business can focus on recovering and rebuilding after the impact of Covid-19.

Our solicitors will:

  • Scrutinise the wording of your insurance policy and identify the type of business interruption policy that you hold.
  • Consider the losses you may be entitled to claim.
  • Based on the supreme court judgment provide an initial view of the merits and value of your claim.
  • Advise you of your options, likely timescales, and costs.

If you are looking to make a claim on your business interruption insurance, then you may stand the best chance of success with your claim if you:

  • Get your claim professionally assessed, for example, by using our assessment service. One of the most common reasons for claims being unsuccessful is policy holders not reading the terms of their policy and understanding their cover and policy excess.
  • Document your damage and loss so that you can quantify your Covid-19 related losses and insurance claim.
  • Provide the insurance company with sufficient and detailed information to process your claim. For example, a condition of certain types of policy is to prove the presence of Covid-19.
  • Take professional advice before you submit your claim and before you settle your claim as you may not have assessed and quantified the extent of your Covid-19 related losses or provided sufficient Covid-19 related data or business information in support of your claim.

If you are looking to make a claim on your BI insurance, give it the best chance of success with our assessment process.

What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no obligation to instruct us. We aim to respond to all messages received within 24 hours.

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