There has been some good news for local businesses who have been hit by COVID-19, as they may now be able to realistically pursue an insurance pay-out following a judgement handed down by the Supreme Court.
At a hearing on January 15, the court backed policyholders in a test case to clarify whether a variety of policy wordings cover business interruption (BI) losses resulting from the pandemic.
Proceedings were brought by the Financial Conduct Authority last year, as clarification had become vital due to the pandemic and the measures adopted by the government. Businesses that had been forced to close due to lockdown restrictions were unsure whether their insurance would cover their losses.
The FCA says the result means “many thousands of policyholders” will now receive pay-outs for coronavirus-related business interruption losses.
A typical disease clause in a business insurance policy will cover losses when a notifiable disease occurred within a geographical radius of the insured premises, typically 25 miles.
But all too often, an insurer requirement will state that a local authority must have imposed ‘prevention of access’ or similar restrictions on use of business premises before accepting any form of liability.
The Supreme Court rejected this and ruled that the disease clause may be satisfied in an emergency, if it is given in clear, mandatory terms – for example, the Prime Minister’s ‘stay at home’ instruction.
The Supreme Court also gave guidance where a business offers a mixture of ‘walk-in’ and telephone or online orders. For example, a restaurant business which provides eat-in and takeaway services which closed the eat-in arm of its businesswould be restricted to recovering loss from the eat-in service only.
The obvious note of caution is that this was a test case concerned with general points of principle and the wording of each policy will remain key. The decision was also based on facts raised in proceedings started in June 2020 and developments in the pandemic since may give rise to more novel points which have not yet been put in front of a court.
So, while this case offers hope, success cannot be viewed as a racing certainty and businesses may expect insurers to contest the amount claimed for business interruption losses. What is needed is a careful analysis of your policy wording to see whether or not this latest court decision can help you to argue your case.
Philip Morris, Dispute Resolution Lawyer