Business Interruption Insurance – Pandemic Article

15 September 2020

Business Interruption Insurance – The Pandemic Test Case Decision


Covid-19 has not only disrupted the personal lives of many, it has also had an unprecedented and disastrous financial impact on many businesses. This in turn has heavily impacted the UK economy.

The insurance world has been in, and is likely to remain in, a state of chaos for some time.  There has understandably been a peak in notifications of Business Interruption (BI) policies.
This has led to a number of businesses challenging insurers where BI cover is being declined in light of the pandemic. Further clarity was required from the High Court in order to try and assist policy holders to avoid an inevitable spike in costly and lengthy Court battles.

The Financial Conduct Authority – Bringing the Pandemic Test Case

In May 2020, the FCA confirmed their intention to bring a test case within the High Court inorder to seek clarification on BI policy wordings in relation to Covid-19.

In order that businesses can understand their true financial position and/or the real financial
impact that Covid-19 has had upon their business, it was important that clarity was received on BI cover.

The case – What had been decided?

The insurance industry has been truly gripped by the High Court case pursued by the FCA.

The High Court handed down their judgment today and found for the FCA on the majority of key issues.

The decision will provide that where businesses were forced to close/impacted due to Covid- 19, those businesses should be covered by their insurers and entitled to compensation. This will of course be subject to what is provided within the policy. However, it is currently
considered that most businesses who held BI insurance would be entitled to monetary compensation and that compensation should put them in the position as if the pandemic had not happened.

The FCA chief executive commented:

“We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgement is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgement quickly and the speed with which it was reached reflects well on all

… ‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps…”

Undoubtedly, a decision of this magnitude is likely to be appealed. However, the FCA chief executive has openly encouraged insurers to take steps to progress claims.

What should businesses with BI cover do?

If your business has been declined BI cover following interruption to your business due to Covid-19, your business should review your policy and consider making another claim.

The decision does not automatically provide blanket cover for all BI policies. Each policy with each particular insurer would need to be carefully considered on its own wording against the detailed judgment handed down. This analysis is outside the scope of this article.

Now…will there be an appeal?

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.