On 15 January 2021, the Supreme Court upheld an appeal by the Financial Conduct Authority (FCA), ruling that the vast majority of business interruption (BI) insurance policyholders will now be covered for losses incurred by the coronavirus pandemic.
Background
When thousands of small businesses were forced to close or cease trading unexpectedly last Spring, policyholders made claims through BI insurance policies for loss of profit suffered as a result of the nationwide coronavirus lockdown, particularly where policies covered BI due to infectious or notifiable diseases.
Many insurance providers disputed liability, arguing that BI insurance was not designed to cover a Government-imposed lockdown and that such unprecedented restrictions were only covered in specialist policies.
Seeking clarity on the specific wording of BI policy clauses, the FCA brought a test case to the High Court in June 2020. The FCA, the Hiscox Insurance Group, and six out of the eight insurers appealed, prompting the Supreme Court to issue its final ruling. A summary of the judgment can be found here.
What does this ruling mean for businesses?
Widening the scope of cover, the Supreme Court ruling means that any business with a BI clause in its insurance policy will be entitled to claim for loss of income suffered as a result of the coronavirus pandemic. This is welcome news for thousands of small business owners, many of whom have waited months for resolution of their claims.
Claims will also take into account any money received by the business during the pandemic, including under central and local government business support schemes and grants. Other factors such as dates of policies, policy excesses, and other relevant exclusions, will also determine the amount of compensation businesses are entitled to recover.
Impacting more than 60 insurers, 700 types of policies, over 370,000 policyholders, and more than £1bn, the ruling provides much-needed certainty for businesses and insurers alike.
Insurers' attention will now focus on valuing, adjusting, and paying valid claims.
Next steps for policyholders?
Policyholders should check their policy wording, in particular the schedule, and notify their insurer of their intention to claim, either directly or through their insurance broker or other advisers. Where a policyholder has already notified a BI claim with an insurer, their insurer should contact them shortly.
Guidance on making a claim is typically found in the policy wording, setting out the timing of a notification, the precise method of notification, and the need for additional information to support the claim. Next week, the FCA will publish further guidance to assist policyholders. For more information and regular updates on BI insurance, please visit: https://www.fca.org.uk/firms/business-interruption-insurance.
The FCA's continued commitment to work with insurers should mean that delays in making payments are kept to a minimum, although it will clearly take some time for insurers to deal with all of the claims.
In the event of any dispute with insurers, or indeed for any other dispute resolution service, our dedicated commercial disputes team is available to help. Contact us today on 01603 693500 or email us using the 'Make an enquiry' form. Face-to-face meetings are available by appointment only at our Norwich, North Walsham and Sheringham offices.
*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.
