July 21, 2020
As a business owner you need to protect your business against potential risk. And for many there has been no greater threat to operations than the COVID-19 crisis causing chaos across the globe.
The spread of coronavirus has cost UK businesses billions and many are relying on business interruption insurance as their lifeline to continue trading. However, business interruption policyholders are finding their insurers are not paying out for claims for losses caused by coronavirus, arguing that their policies do not cover the pandemic.
Understandably, for businesses that have been paying pricey premiums for policies, this very much feels like being kicked when you’re down…
Business Interruption Insurance typically covers loss of income sustained by a business after an incident which causes damage to property and affects its ability to trade, such as a fire or flood. There may also be cover where the “incident” does not involve physical damage to property but still disrupts a business’ ability to trade.
Some policies provide cover upon the occurrence of a notifiable disease within a certain vicinity of a policyholder’s premises or an incident which prevents access to premises imposed by a government order.
Business interruption insurance usually forms part of wider business insurance cover as opposed to being a standalone policy.
In order to provide clarity for policyholders, the Financial Conduct Authority has issued a test case in the High Court against eight insurance companies who have agreed to participate in the proceedings. The FCA is seeking declarations from the Court on the meaning of a selection of policies to confirm whether they provide cover for the pandemic. The FCA, adopting the policyholders’ position for the purposes of the proceedings, argues that there is no exclusion for pandemics in the policy wordings. It also argues, amongst other things, that policies should cover loss that is due to Covid-19 generally rather than just where there is an identified incidence of the disease in the specific vicinity of the business.
There is always scope for interpretation of insurance policies. Unsurprisingly, insurers are arguing for a narrow interpretation of the wording of their policies. Arguments put forward by the insurers include that the parties did not intend for the policy to cover a global pandemic and that there must have been specific cases of Covid-19 within the vicinity of a policyholder’s premises in order to trigger cover. Demonstrating this would obviously be very challenging.
The outcome of the test case will have major ramifications. The case will be binding on the eight insurer defendants and it will inform the way that other insurers respond to Covid-19 related business interruption claims. It will also provide guidance for the Courts’ interpretation of similar policies.
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