Supreme Court offers hope to thousands of businesses: The impact of the business interruption insurance decision

During the Covid-19 pandemic tens of thousands of small and medium sized businesses have not been able to carry out their business. The purpose of business interruption insurance is to ensure that policyholders are covered for loss of income, due to an unexpected event. It was argued by the six largest commercial insurers that only very specialist policies would provide cover for the restrictions implemented, due to the Coronavirus.

The Financial Conduct Authority (FCA) brought a case on behalf of UK based small and medium sized businesses against the ‘big six’ to determine the validity of claims of business interruption. On 15^th January 2021 Judgment was passed to largely find in favour of businesses, meaning that thousands of businesses will now be entitled to receive a pay-out from their policy, costing insurers an estimated £1.2 billion.

During the case, the Court was asked to review the four types of clauses commonly found in business interruption insurance policies, which are categorised as follows:

1. Trends clauses- This type of clause refers to losses being quantified by reference to what level the business would have performed at, had the unexpected event not occurred.
2. Disease clauses- This type of clause would specifically provide cover for business interruption losses caused by a notifiable disease, at or within a certain area of the premises of the business.
3. Prevention of Access clauses- This type of clause provides for cover where the business interruption losses are suffered as a result of a public authority preventing or hindering access to or the use of business premises
4. Hybrid clauses- This type of clause acts to combine the Disease and Prevention of Access clauses.

It was ruled that each of the above types of clauses should be interpreted as providing cover for those with business interruption insurance.

What does this mean in practice?

The decision of the Supreme Court means that thousands of businesses may now be able to receive a pay-out in relation to the claim for the losses suffered, due to Covid-19.

The general expectation moving forwards will be for policyholders to contact their insurers to make a claim under their business interruption policy. The FCA have confirmed that they will be working with insurers to try to ensure that any claims affected by the Judgment are dealt with quickly and appropriately.

Businesses who have not made a claim and have suffered losses, due to business interruption should carefully review their policies to see if they are able to receive cover.

If a business has previously submitted a claim and had it rejected, the insurers should be contacted again to review the position.

It is worth noting however that the decision of the Supreme Court will not resolve all disputes and it remains to be seen how different clauses may fall into the above categories and how losses will be quantified when considering the Government’s financial support packages.

If you require any advice or assistance in determining the validity of a potential claim, please contact us on 01270 613939 or complete a contact form and we will call you back.