Business Interruption Insurance

September 23rd 2020

Light at the end of the tunnel?

The insurance world has been in a state of limbo since the beginning of lockdown as insurers reviewed policy claims and the application of business interruption clauses to the current situation. Due to the enormity of the impact COVID could potentially have on the insurance industry it has brought a test case in the name of 8 insurers with the most common policy wording for BI insurance. They have sought an expedited ruling from the high court in relation to these clauses. The hearing commenced in early June and the judgement was handed down on 15 September.

The judgement provides guidance on the proper operation of cover under certain non-damage business interruption insurance extensions. Although there was a huge scope of issues reviewed the main clauses reviewed by the court were:

  • Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
  • Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
  • Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.

It is, on the whole, good news for those people who held a policy with ‘disease’ or hybrid wordings. Those with ‘prevention of access’ clauses may also benefit although these clauses are to be construed more restrictively. Success or failure for each policy holder will depend on the drafting of their individual contract.

The FCA has now issued a letter to all Insurance company CEO’s outlining their expectation of compliance with the judgement. Every policy holder with a claim or complaint that is potentially affected by the judgement should receive an update from their insurer within 7 days, however, in practice many of the insurance companies are simply issuing holding letters that explain that they are reviewing the impact of this judgement on their claim.

There is a hearing taking place on 2 October at which the 8 insurers who are parties to the test case may apply for an appeal.

Hopefully, once the scope of any appeal is known on 2 October, we will begin to see Insurers addressing the previous uncertainties and clarifying the position with their policyholders.

If you have not already done so, now is the time to review your insurance documents to see if you could be eligible to make a business interruption claim.

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