Business interruption insurance is designed to protect you against a loss of income where you are unable to operate as normal due to unexpected reasons outside of your control. Thousands of policies are issued annually to cover everything from the forced closure of premises as a result of fire or flood, to an inability to trade due to the breakout of a notifiable illness like legionnaires disease and more recently Covid-19.
While the majority of claims are settled on agreeable terms, sometimes a dispute arises over whether the event that has occurred is covered by the insurance in place and this is where you may need legal advice to ensure your claim is fairly processed.
As Divyesh Popat, partner and solicitor in our commercial dispute resolution team, explains:
‘We have seen a particular increase in claim disputes over the last 22 months. Insurers and policyholders have been at odds about the extent to which losses attributable to coronavirus are recoverable, and in some cases those disputes have become pretty fierce.’
Thankfully, the Supreme Court has now given guidance on the extent to which some of the most commonly issued business interruption policies apply to cover Covid-19 related claims. This means that our lawyers are well placed to give definitive advice and to support you in securing a payout in respect of losses that are properly recoverable.
Supreme Court decision
In The Financial Conduct Authority v Arch and others (2021), the Supreme Court considered business interruption policies offered by a number of well-known insurers, including Hiscox, Royal & Sun Alliance, QBE UK Limited and Arch Insurance (UK) Limited.
As far as those policies are concerned (which are reflective of many of the policies available on the market), the court confirmed that:
- For disease clauses – clauses which cover losses resulting from the detection of a notifiable disease at a business’s premises (or within a certain radius of those premises) do cover Covid-19 related outbreaks, but can only be relied on where the losses claimed result from cases of the disease detected on the premises or within the radius specified.
Where your business has been affected by national or local restrictions, you need to be able to show that the interruption you have suffered is as a result of Government or local authority action taken in response to at least one confirmed case of Covid-19 within the geographical area covered by your policy.
- For prevention of access clauses – clauses which cover losses resulting from public authority intervention which prevents or hinders access to or use of a business’s premises, are not limited to interventions that have the force of law. Therefore, they can be relied on to cover losses incurred as a result of national or local lockdowns ordered by the Government or a local authority, even where there was or is a lag in accompanying regulations and laws being implemented.
In addition, a prevention of access clauses can be relied on not just where access has been restricted to the whole of a business’s premises, but also where access has been restricted to a part of those premises normally used for business activities. Equally, a business may be deemed as being unable to use its premises not just where there is an inability to use the whole of those premises, but also where there is an inability to use a certain part of those premises for all or some of the business’s usual activities.
Furthermore, clauses which cover losses for restrictions imposed by the Government or another public authority apply not just to restrictions imposed on the business itself, but also to restrictions imposed on existing and potential customers of the business.
- The meaning of business interruption – business interruption as a concept includes interference and disruption to a business’s usual activities and is therefore not just limited to cases where a business has been forced to entirely cease trading.
The calculation of losses
Where losses are to be assessed on the basis of a trends clause (i.e. a clause which calculates losses based on how the business was likely to have performed in any event given past trading performance etc.) the calculation should be undertaken on the assumption that any losses sustained by the business due to the Covid pandemic before the business interruption occurred would not have continued to impact the business during the period for which the interruption actually lasted.
Implications
The recovery of income losses under business interruption insurance will continue to turn on the facts of each case and on the specific wording used in the policy in question. However, the decision in the FCA v Arch case is expected to pave the way for more business interruption claims relating to Covid-19 to be successfully pursued.
That said, it is still sensible to take advice from a lawyer about whether the wording of your policy makes a claim viable. This is particularly true where you are looking to recover losses that occurred after the Supreme Court issued their judgment on 15 January 2021, as it may be that the terms of your business interruption policy have been amended or redrafted in light of the court’s decision (for example, on renewal) to provide more limited cover.
How we can help
We can tell you whether a claim on your policy is possible and if it is, then we can then support you to make that claim and secure the most generous payout available.
In the vast majority of cases that we deal with, we can normally get the insurer to admit liability and agree a settlement amount simply through an exchange of correspondence. However, where the insurer decides to dig in their heels we can advise you on your options for taking the matter further. This may include referring your dispute to the Financial Ombudsman Service if you meet the eligibility criteria, asking the insurer if they would be prepared to engage in some sort of alternative dispute resolution process or, if all else fails, issuing legal proceedings in order to have your claim determined by a judge.
Contact us
For further information, please contact Divyesh Popat on 020 7845 7412 or via email at divyeshpopat@iwg.co.uk.