Business interruption insurance: Supreme Court opens door to claims

When the first lockdown was announced back in March 2020, many businesses were required to close. Non-essential retail, pubs and restaurants, hair and beauty salons – these were just some of the firms that had to shut their doors. As a result, many business owners reached for their business interruption insurance policies and decided to make a claim.

In a huge number of cases, these claims were refused. Insurers argued that only highly specialised policies provided cover for such unprecedented restrictions. Tens of thousands of firms didn’t receive a penny and a significant number were forced to close.

As we reported back in September 2020, the Financial Conduct Authority (FCA) brought a test case against a number of major insurers. The High Court ruled that certain types of business interruption policy were valid and that insurers should pay out.

Unsurprisingly, with hundreds of thousands of affected policy-holders – each with claims that can run to tens of thousands of pounds – the insurers decided to appeal the judgement. The case went to the Supreme Court which, last week, found largely in favour of policyholders.

The ruling is good news for many businesses. But what does it mean for you? And are you able to claim on your policy after all?

Which business interruption insurance policies are affected?

According to the Financial Times, “Up to 700 types of insurance policy issued by 60 different insurers are affected by the ruling”. So there’s no simple answer to whether you will be able to claim.

As we said in our original post:

In most cases, SMEs only have insurance that covers business interruption as a result of property damage. If you have one of these policies, you are very unlikely to receive any pay-out.

However, some BI policies are more comprehensive and cover business interruption from other causes. As the FCA says, these include policies that:

“…cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).”

In addition, on 15^th January, 2021, the Financial Conduct Authority issued a detailed press release on the Supreme Court’s ruling. It says that the original High Court ruling established that:

“…cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover. This will mean that more policyholders will have valid claims and some pay-outs will be higher.”

The FCA also recommends that you refer to the bulletin published by its legal team at Herbert Smith Freehills, which examines the Supreme Court ruling in more detail.

How do I know whether I can claim?

Every business interruption insurance policy needs to considered in the light of the Supreme Court’s judgement. If your policy is affected by the ruling, then you should hear from your insurer soon. However, you may wish to speak to your insurer or broker or seek independent advice.

Currently, the FCA and insurers are working to summarise the Supreme Court judgement into a set of declarations. This will list types of business interruption insurance policy that are potentially affected by the ruling. Keep an eye on the FCA’s business interruption insurance page for updates.

As things stand the judgement is binding on the eight insurers that participated in the test case. They are:

• Arch Insurance (UK) Ltd
• Argenta Syndicate Management Ltd
• Ecclesiastical Insurance Office Plc
• MS Amlin Underwriting Ltd
• Hiscox Insurance Company Ltd
• QBE UK Ltd
• Royal & Sun Alliance Insurance Plc
• Zurich Insurance Plc

However, it’s important to remember that the judgement provides ‘authoritative guidance for the interpretation of similar policy wordings and claims’. This means it ‘can be taken into account in other court cases, including in Scotland and Northern Ireland, by the Financial Ombudsman and by the FCA in looking at whether insurers are handling claims fairly.’

What should I do next?

You may want to get in touch with your insurer to find out whether they intend to pay out on your business insurance policy. If they do not plan to, then it may be worth seeking expert advice.

At THP, we will keep you informed of future developments concerning the application of the Supreme Court’s ruling. If you are one of our clients, please feel free to get in touch with your account manager.