The Supreme Court has today handed down its judgment in the Business Interruption Insurance (BII) test case, confirming that businesses affected by the first national COVID lockdown are entitled to payments from their business interruption insurance policies. This landmark decision provides considerable clarity to policyholders who have been affected by COVID-19 and have previously been denied BII cover by their insurers.
The test case has come about as a large number of disputed insurance claims have been made by SMEs under policies covering business interruption (“BI”) losses, particularly – and relevantly in this action – under extensions or other coverage clauses that do not require property damage, instead being focused entirely on events causing an impact to the insured business.
What is Business Interruption insurance?
Business interruption insurance covers businesses for loss of income during periods when the business cannot trade as usual due to an unexpected event.
The aim of BI insurance is to put a business back in the same trading position it was in before the unexpected event occurred.
Why is the FCA’s BI Insurance test case important?
Policyholders are generally not sophisticated or well-resourced insurance buyers in the way a large corporate would be. It is against that background that the FCA, as Claimant in a claim brought under the Financial Markets Test Case Scheme, thus seeks legal certainty for the benefit of all stakeholders, and to achieve this urgently in the public interest to facilitate the continuation of businesses to the extent they have survived in the meantime or to bring some relief and opportunity for those that have not.
Given the complexity of business interruption claims and the legal uncertainty surrounding their enforcement (the FCA have issued a test case recently in the High Court), it is advisable that you seek expert legal advice early in order to prepare your Business Interruption Insurance claim.
What does the Supreme Court’s judgment say?
The Supreme Court primarily considered whether policyholders were entitled to receive payouts under ‘disease clauses’ and ‘prevention of access clauses’ in business interruption insurance policies for losses caused by COVID-19.
The Supreme Court accepted in its judgment that COVID-19 became a ‘notifiable disease’ on 5 March 2020, and therefore ruled that it is sufficient for policyholders to prove that:
- the business interruption resulted from government action (for example, the first national lockdown relating to COVID-19 in March 2020);
- the government action was taken in response to cases of COVID-19; and
- there was at least one case of COVID-19 within the geographical area covered by the disease clause in the business interruption insurance policy (which is usually, but not always, a radius of 25 miles from the policyholder’s business premises).
The Supreme Court also ruled that business interruption insurance cover may also be applicable under prevention of access clauses in relation to:
- partial closures of business premises due to COVID-19;
- full closures of business premises due to COVID-19; and
- mandatory closure orders due to COVID-19 that were not legally binding.
Download the Supreme Court Judgment
Is my company entitled to Business Interruption insurance?
Specific advice can only be provided by this firm once we have been instructed to review your insurance coverage and other supporting documents. However, the FCA believe that insurers should be liable for paying out for business interruption claims related to the coronavirus pandemic and the subsequent government lockdown restrictions placed on UK businesses. The High Court in the FCA’s test case now confirm that the majority of the FCA’s submissions on behalf of policyholders have been accepted.
Most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic.
However, for the remainder of policies that could be argued to include cover. There are policies where it is clear that the insurer has an obligation to pay out on a policy. For these policies, it is incumbent on the insurer to assess and settle these claims quickly. Financial pressures on policyholders should not be exacerbated by slow payment, rather, such claims should be paid as soon as possible.
10 reasons why our Business Interruption Insurance team can help you obtain optimal compensation
We endeavour to make the process as stress-free as possible for our clients and seek to eliminate the possibility of business or litigation failure. We know that each client’s case and business is unique, therefore we adopt a bespoke approach tailored to suit the client’s circumstances. We provide specialist legal advice from solicitors and barristers (including at QC level) at the outset when it absolutely matters in choosing the best strategy to follow.
- The Supreme Court did not resolve all possible business interruption insurance disputes between insurers and policyholders, but only dealt with some contractual issues relating to some insurers’ policies. Our specialist business interruption insurance solicitors will consider the facts of your case, including your specific business interruption insurance policy, and provide you with strategic advice for your situation.
- The Supreme Court’s judgment did not offer any guidance on how much is payable by business interruption insurance insurers under individual policies to specific policyholders. Our expert business interruption insurance lawyers can help assess your case and advise on the optimal redress to seek from your insurer.
- You may be unhappy with how your insurer has handled your BII claim and want to complain to the Financial Ombudsman Service, via whom it may be possible to obtain compensation of up to £355,000 (for complaints made after 1 April 2020). Our team can assist in making well-presented and fully-prepared complaints on our clients’ behalf and can advise if litigation is a better option for redress, which in these cases it often is.
- Due to losses caused by COVID-19 and exacerbated by your insurer, your business may be confronted with substantial and stress-inducing financial problems, which may have left you facing the threats of winding up and/or LPA receivership. Members of our legal team are also insolvency and winding up experts so we can quickly assist and advise in these areas.
- Your business may have suffered consequential losses due to your insurers’ failure to pay out under your business interruption insurance cover either promptly or at all, thereby causing irreparable harm to your business. Our specialist lawyers have experience of preparing, evidencing, advising, negotiating, and if necessary litigating consequential loss claims against large financial corporates such as insurers.
- As a result of COVID-19 losses and your insurer’s refusal to honour your business interruption insurance, your business may have been left to fend for itself against HMRC. As HMRC can be vehement about enforcing tax debts, our tax team works closely with our business interruption insurance team to provide you with a bespoke solution to your individual circumstances.
- With business interruption insurers expecting a deluge of policy claims following the Supreme Court’s decision, you will need to ensure that you are at the front of the queue for business interruption insurance pay-outs. Our business interruption insurance lawyers can work with you to ensure the best chance of success for you in negotiation or if necessary litigation.
- Many businesses will already have been rejected for business interruption insurance claims by their insurers in advance of this Supreme Court decision. Our business interruption insurance specialists can assess your claim and your insurer’s rejection, and assist you in recovering optimal compensation.
- If negotiation is not possible to resolve your dispute with your insurer, then litigation can be considered. Our expert business interruption insurance lawyers can help assess your case and position, and using their specialist knowledge and experience will strategise the best way to commence legal proceedings against your insurer for optimal compensation.
- If legal proceedings against your business interruption insurer have already begun and you are worried about the prospects of success, we can provide a second legal opinion by analysing the legal merits of your case and advising on legal risk factors so that we can deliver strategic legal advice at your first meeting with us.
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