Small Business owners who have suffered due to the Coronavirus outbreak but not been paid out on their business interruption insurance policy have been given hope by the latest High Court judgement.
Some insurance policies cover for business interruption from infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’). In some cases, insurers have accepted liability under these policies. In other cases, insurers have disputed liability while policyholders considered that it existed.
The judgement from the High Court followed a test case raised by the Financial Conduct Authority (FCA), with a sample of 21 different insurance policies and their clauses being ruled on. The High Court ruling declared:
- Most, but not all, of the disease clauses in the sample provide cover. It also says that certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.
- The test case has also clarified that the Covid-19 pandemic and the Government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.
Although the judgment will bring welcome news for many policyholders, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court. Each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next 7 days.
The test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers. It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market.
Responding to the result of the FCA’s business interruption test case, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said: “This ruling marks a big step forward. It can only be celebrated as a partial victory, however, as it still leaves many with little certainty around whether they will receive pay-outs for policies that have cost them thousands. And for many others with standard interruption cover, this judgement will have no bearing.
“The FCA was absolutely right to argue that disease or denial of access clauses within interruption policies should trigger pay-outs in the event of coronavirus-linked disruption. We’re hugely grateful for its work in this space.
“We echo the regulator’s call to insurers to reflect on the clarity provided by this judgement and do the right thing by policyholders, many of which are fearing for their futures after six months of serious disruption. They acted responsibly by taking out these policies, and having them honoured is crucial to encouraging more firms to do the right thing where insurance is concerned.”
The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. The judgment does not determine how much is payable under individual policies, but will provide much of the basis for doing so.
It is possible that the judgment will be appealed. Any appeal does not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.