The Supreme Court has ruled in favour of the FCA, and subsequently small businesses across the UK, in a Business Interruption insurance test case. The six insurers involved will be forced to pay an outstanding £1.2bn in CBI claims, meaning thousands of policyholders will have their claims for coronavirus-related Business Interruption losses paid.
Sheldon Mills, executive director for Consumers and Competition at the FCA, said of the win: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.”
Business Interruption test case background
Many policyholders whose businesses were affected by the Coronavirus pandemic suffered considerable losses, resulting in an unprecedented number of Business Interruption (BI) claims.
Most SME policies are primarily focused on property damage, meaning that they typically include basic cover for business interruption as a consequence of things like fires, floods, and earthquakes. However, some policies also protect against BI from other causes – in particular, infectious or notifiable diseases and prevention or denial of access/public authority closures or restrictions. In the wake of the Coronavirus pandemic, there has been no standard response by insurers, with some accepting and others disputing liability under these policies. This in turn has caused widespread confusion for policyholders, which is where the FCA stepped in with a test case.
As written in a press release from the FCA today, the case was intended to ‘urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible’. A representative sample of 21 types of policy issued by eight insurers was taken to the Supreme Court, while the FCA put forward policyholders’ arguments to their best advantage in the public interest.
In the end, 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.
What does the Business Interruption ruling mean for UK SMEs?
Following the appeals to the Supreme Court, insurers have been urged by the High Court to process any valid claims without delay. The FCA has pledged to work with insurers to rapidly conclude their claims processes on the relevant claims ordered to be paid by the Supreme Court.
In a wider scope, each Business Interruption policy needs to be considered against the detailed judgment to conclude whether a legitimate BI claim regarding Coronavirus can be made. Policyholders who have already submitted a claim can expect to hear from their insurer soon.
What does the Business Interruption ruling mean for Kingsbridge Insurance Brokers’ customers?
Firstly, despite the way the ruling has been reported in the press, it is important to restress that certain extensions to the BI section of the wording are needed to be in place at the time of the loss for cover to apply.
As mentioned above, these related to the two main areas of cover below:
Denial or Prevention of Access
Clients who have a clause in their policy wording which includes cover where some form of government authority issues an order to prevent or restrict clients access to their premises.
However, in relation to a BI claim for Covid –19, this clause does NOT provide cover where the wording relies on ‘damage’ to occur for this extension to apply.
Clients who have a Notifiable Disease clause in their wording (usually with a radius of the premises provision).
Again, in relation to a BI claim for Covid-19, this clause does NOT apply where the Notifiable Disease clause included an exhaustive list of diseases but did not include Covid-19.
It is fair to say that most insurers would not have the clauses listed above as ‘standard’ within their general wordings. Where cover was included it must meet the criteria above or their wordings in these areas were sufficiently vague as to warrant further review.
With this information in mind, if you feel you may have a valid Business Interruption claim due to Covid-19 or if you wish to discuss your cover in more detail, please contact your Kingsbridge account team.