Thousands of small businesses have been handed a lifeline after the Supreme Court ruled insurers must pay out for losses incurred as a result of the coronavirus pandemic.
The judgement marks the end of a year-long case brought by The Financial Conduct Authority (FCA) on behalf of approximately 370,000 policyholders, and upholds a September 2020 legal ruling which ordered insurers to honour most coronavirus-related business interruption insurance claims.
The judgement is welcome news for those grappling with uncertainty and financial hardship brought on by the pandemic, many of which will now be entitled to policy pay-outs. Sara Beaumont, director at WHN Solicitors, explores what the ruling means for affected policyholders.
The case
This was a test case brought by the Financial Conduct Authority by selecting a representative sample of policy wordings issued by eight insurers.
The case considered 21 different policy wordings which covered the majority of disputes between the insurers and policy holders, which generally fell into three categories:
- Disease wordings: clauses which provide cover for business interruption in relation to disease within a specified radius of the insured premises.
- Prevention of access / public authority wordings: clauses which provide covering hinderance of access to business premises as a result of government or other authority restrictions.
- Hybrid wordings: clauses which cover restrictions imposed on business premises in relation to a disease.
The disease wordings
Many businesses have been declined insurance pay-outs by insurers which argued their policies only cover a local outbreak of COVID-19, and not a wider national outbreak.
The new court ruling however clarifies that disease wordings in policies must cover businesses affected by an outbreak anywhere within England and Wales, as an outbreak in the policy area was indivisible to the outbreak as a whole, meaning the cover could not be limited to a local outbreak.
For policy wordings that include the requirement that the occurrence of a notifiable disease had come within the ‘vicinity’ of the business premises, vicinity was taken to be England and Wales.
Prevention of access / public authority wordings
The Supreme Court has confirmed that for insurance claims covering the denial of access to business premises to be successful, there is no requirement for an actual legislative step ordering closure of a business.
Similarly, losing access to part of a premises may also be sufficient to allow a claim to be made.
Hybrid wordings
As the name suggests, these clauses are a combination of disease wording and prevention of access wording.
On appeal, the Supreme Court again took a less restrictive approach, increasing the opportunity for valid claims to be made by allowing a wider interpretation of both disease and prevention of access requirements.
This opens the door for successful claims from businesses which before would only have been successful in a very narrow set of circumstances.
What should businesses do next?
Any business which attempted to make a claim on their business interruption insurance as a result of the first lockdown – and the ongoing pandemic generally – and was refused, may now wish to revisit their policy and challenge the claim.
There may also be opportunities for businesses which had claims accepted to receive higher pay-outs, so these claims should be revisited too.
The decision may also have wider implications for other business interruption claims beyond the pandemic, meaning businesses may also be covered for potential claims relating to flooding and storm damage.
Sara Beaumont is a director based at WHN’s Bury office. Sara specialises in commercial dispute resolution, advising clients from sole traders to national PLCs on a variety of contractual disputes including those relating to insolvency and intellectual property, while she also leads the firm’s debt recovery team. To contact Sara, call her on 0161 761 4611 or email sara.beaumont@whnsolicitors.co.uk
