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Business Interruption Insurance – Supreme Court decision 15 January 2021

15 January 2021

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 has been declined in light of the pandemic. Further clarity was required from the Court in order to try and assist policyholders to avoid an inevitable spike in costly and lengthy Court battles.

The Financial Conduct Authority – Bringing the Pandemic Test Case

In order that businesses could understand their true financial position and / or the real financial impact that Covid-19 has had upon their business the FCA brought a test case seeking clarity on BI cover.

In September 2020, the FCA’s test case was decided by the High Court, which found for the FCA on the majority of key issues. There was, however, an appeal by insurers to the UK’s highest appeal court.  The Supreme Court has today dismissed the appeal and, therefore, the issues have been decided mainly in the favour of policy holders.

The decision

The decision provides that where businesses were forced to close / were 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 Interim Chief Executive of the FCA today commented:

“We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims, and the wider market. 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 judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the Court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.

Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this Court action has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful”.

The FCA expects insurers to communicate directly and quickly with policyholders to explain next steps.

What should businesses with BI cover do?

If your business has been declined BI cover following interruption to your business due to Covid-19, you should expect to hear from you insurer; if you do not hear from your insurer shortly you should contact them, making reference to the Supreme Court’s decision today and the FCA’s expectation that they should be communicating with you promptly.

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.

For guidance and to discuss your individual set of circumstances in this and a range of other potential commercial disputes contact our Dispute Resolution Team by following this link

This article was produced for Redkite Solicitors by Julian Wintle, Dispute Resolution Partner within Redkite. To find out more about Julian visit his website profile here.