Is it possible to claim on my Business Interruption Insurance for the loss of income caused by Coronavirus?
15th January, 2021
The short answer is that you will need to check the wording of your policy against a judgment recently given by the High Court. The Financial Conduct Authority (FCA) estimates that 370,000 businesses have policies which are affected and may be able to claim and that insurers may have to pay out up to £1.2bn across all policies, so it is certainly worth checking.
Business Interruption Insurance covers the business for loss of profit during periods when you cannot carry out business as usual due to an unforeseen event.
Shortly after the government announced in March that we should all stay home an argument broke out between insurers and small businesses over whether claims could be made on their Business Interruption policies.
The FCA stepped in and announced it would bring a test case to seek clarification of whether the wording of some Business Interruption Insurance policies extended to cover the losses arising from the pandemic. The test case involved wording from policies provided by Hiscox, RSA, Zurich and 5 others as a representative sample of the wording generally used across all policies.
The High Court heard arguments from both sides over 8 days in July, the main thrust of argument concerned two clauses within the policies; those that referred to cover for “notifiable disease” and clauses relating to “denial of access” to the business premises.
The High Court provided its judgment on 15 September and on the whole found in favour of policyholders. Of the clauses considered by the court most of the notifiable disease clauses and/or the denial of access clauses were found to provide cover for loss of income arising from the Coronavirus pandemic and the restrictions the government has implemented.
Whilst this is good news for business, if you have Business Interruption Insurance this is not the end of the story. The real sting in the tail is that the insurers may yet appeal the judgment. The FCA have confirmed they are working hard with insurers and the representatives for policyholders involved in the test case to iron out any remaining issues to avoid the need for an appeal.
A further hearing will take place on 2 October, if agreement cannot be reached before then the High Court will use the hearing to consider applications to leapfrog the usual process and proceed straight to an appeal at the Supreme Court so that policyholders can get some certainty and the process of assessing the claims can begin without too much further delay.
The opportunity to appeal the judgment means payouts are unlikely at the moment but it is still worth making a claim if your policy contains wording relating to the type of clauses covered by the test case; this will depend on the specific policy you have and your broker or lawyer should check this for you against the judgment (which runs to 160 pages) to prevent delay in getting a payout if possible. If cover is available the business will still need to illustrate how much income is lost because of the pandemic and the government lockdown. You should call on your accountant to help you with this process.
With the prospect of more local lockdowns and government support withdrawn business profits will be further hit – clarity on this issue cannot come soon enough.