The COVID-19 pandemic has caused UK businesses a massive amount of stress and disruption since lockdown began in March 2020. Premises closures have resulted in substantial financial losses for companies up and down the country, with many businesses hanging on by a thread and some having to unfortunately close for good.
Many business owners have tried to claim for these coronavirus-related losses under their business interruption insurance policies, only to be told that their policy does not cover COVID-19 issues.
There has been widespread concern, however, at the lack of clarity surrounding these decisions by insurance firms, with many claimants believing they are perfectly entitled to receive compensation under their policy.
The Financial Conduct Authority (FCA) has sought legal clarity from insurers for businesses claiming against their business interruption insurance. In September 2020, the FCA won a vital test case in the High Court which now means insurers are having to pay out on a multitude of these claims which were originally refused. Claim Experts team of commercial advisors can assist you and your business if you believe you have been wrongly refused a pay-out by your insurer.
What is Business Interruption Insurance?
Business Interruption Insurance is a type of insurance that is designed to cover businesses from any financial loss as a result of a disaster. Normally, this disaster may present itself in the form of a flood or fire, but the insurance can cover much more than this.
Building insurance will cover business owners in the event of physical damage, whereas business interruption covers any potential financial loss as a result of having to be closed. If a business owner has a successful claim, the insurer will aim to put the business in the same financial position had the disruption not occurred.
Most policies will cover business interruption as a result of damaged caused to the business premises as a result of fire, storms or flooding, but some policies will also include disruption as a result of:
- Customers unable to get into the premises
- Cyber risks – downtime on computers
- Specified or notifiable diseases – providing cover for losses caused by infectious disease
- Non-damage denial of access
- Loss of attraction
Successful claimants can be compensated for any pre-tax losses in profit they suffer, and any increased costs of running the business as a result of the disruption.
This type of insurance is taken out by businesses with a physical location and the insurance is not mandatory by law – it is usually an add-on for most business insurance policies, or included in a comprehensive cover package.
What is the Business Interruption Dispute over?
Thousands of UK businesses tried to claim compensation as a result of their business being disrupted in March 2020 as a result of the COVID-19 pandemic. Insurers, however, were refusing to pay-out, stating that their policies did not cover coronavirus-related issues.
In particular, Hiscox, stated that the policies did not provide cover for business interruption as a result of “general measures” taken by the Government in response to the pandemic.
Insurers were also arguing that under the policy COVID-19 would have to be present in the “vicinity” of the business premises.
This left business owners without protection against COVID-19, no income, and an insurance policy which they had been paying thousands of pounds for and no cover.
The FCA stepped in in April in order to bring clarity and resolve some key contractual uncertainties and causation issues. They wanted to provide policyholders and insurers with concrete procedures so that there was no longer a dispute. Most notably, the FCA wanted to clarify the interpretation of the Denial of Access and Notifiable Disease extensions within policies in relation to COVID-19 related claims.
Denial of Access – Some policies provide businesses with cover for claims where the business has suffered a loss as a result of being unable to open their premises. For COVID-19 related claims, this applied to many companies who were forced to close as a result of Government guidelines.
Notifiable Disease – Some business interruption policies also provide cover in cases where there has been a “notifiable” disease within their premises, or within a specified vicinity – say 15 miles of their address. However, the FCA would go on to argue that due to city-wide lockdowns, the “vicinity” issue has become much wider as the pandemic can affect businesses regardless of specified geographical locations.
The case went to the High Court.
What was the Business Interruption High Court case?
The FCA handed the High Court 21 different types of business interruption policy wording which was to be considered by the court as a test sample. The test case was brought against eight defendants:
- Arch Insurance (UK) Ltd
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- MS Amlin Underwriting Ltd
- Hiscox Insurance Company Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
- Zurich Insurance Plc
In September 2020, the High Court ruled that some, but not all, of the “notifiable disease” and “denial of access” clauses did indeed provide cover for many UK businesses affected by COVID-19 related losses.
The High Court ruled that the COVID-19 pandemic and the Government’s response to it was a single cause of covered loss, something which was required in order for claims to be paid.
This was a massive win for UK businesses who had been due some good news for a long time. The High Court has now handed down the ruling that the companies who are eligible should be returned to the financial place they were in had the pandemic never happened.
The FCA concluded that the case has accomplished what it set out to, and they have informed insurers to apply the judgment by reassessing all outstanding or rejected business interruption insurance claims.
What does the Business Interruption ruling mean for businesses?
It is estimated that around 370,000 UK companies might be affected by this ruling. It is a landmark ruling for the many thousands of businesses who are struggling to survive, who may now receive an insurance pay-out.
Where applicable, insurers will have to pay companies compensation. It has been suggested by the FCA that interim payments are made to businesses to keep them going whilst the true compensation figures are deliberated.
There are also calls to make the business interruption claiming process easier and more efficient so that business owners going through the process are no longer waiting to hear back for weeks on end.
Claim Experts have a team of advisors who can also help speed this process up. Our panel of experts understands the complexities of business interruption claims and can guide you through the hoops insurers often make you jump through.
UK Supreme Also Court upholds business interruption judgement
The Supreme Court also ruled in favour of the FCA and businesses up and down the country in January 2021, upholding the original High Court decision after insurers had appealed. Their ruling also means insurers need to pay out if firms have relevant business interruption policies.
This was a landmark ruling in the business interruption dispute between UK small businesses and insurers. It was much welcome news for many who are struggling to cope throughout a third lockdown.
Estimates show that approximately 370,000 small businesses may be affected by the outcome of this, with analysts estimating that between £3.7b – £7.4b worth of claims are at stake.
Is your business one of them? Our panel can help if so.
How can you claim business interruption compensation?
Claiming business interruption compensation through business insurance could be the only hope of survival for many UK business owners. Having said this, the wording of the insurance policies is often very complex and sometimes unique to each business.
The Claim Experts team can offer assistance in claiming against your business interruption policy, and can guide you through the process. Our panel of advisors can assist you with:
- Informing you if you have a viable claim
- Recommending your next steps if you do
- Challenging your insurer if they refuse to pay
If you believe you are entitled to business interruption compensation and your insurer isn’t paying out, our expert panel are able to go through your policy carefully to determine whether you may be able to claim.
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If our panel of solicitors believe you are eligible and your insurer disagrees, they can calculate your potential losses and challenge your insurer for you. Their expertise with working with insurance companies, the FCA and the FSCS means that they can present your claim in a way that is dealt with promptly and efficiently.