30 March 2021

Business Interruption Insurance and COVID-19

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Since the inception of the coronavirus pandemic, many businesses have experienced widespread disruption across their day-to-day operation, or in cases of severe financial loss, complete closure of business. This has consequently resulted in businesses submitting claims for such losses under their respective Business Interruption Insurance (“BII”) policies.

Background

Over the last few months, there have been contentious concern surrounding the clarity for some businesses making such claims. BI policies have brought to light many complexities following the involvement of the FCA.

The matter was brought before the High Court as part of a test case. This was aimed to provide clarity to the contractual uncertainty surrounding the validity of claims being made under BI policies. The FCA presented arguments on behalf of policyholders, underlaying their commitment to the public interest.

The High Court’s decision resulted in an appeal being forwarded to The Supreme Court, which published its judgment on 15 January 2021. The judgment dismissed every appeal put forward by the Insurers’ and allowed the appeals brought forward by the FCA.

In summary, four grounds of appeal were upheld; two of the four appeals are attached with requirements.[1]

What does this mean for you?

The judgment brings exciting news for policyholders. Policyholders who have cover should now be able to claim under their BI insurance and have their losses paid for claims relating to the coronavirus. The judgment also provides clarity about businesses that can make a valid claim and the amount due to them.

The FCA’s Final guidance: Business interruption insurance test case – proving the presence of coronavirus (Covid-19), was published on 3 March 2021. This has outlined a cease date of 31 January 2022. The guidance is relevant to insurance contracts which:

  • was in force during the UK Government action primarily in March 2020 in response to the national Covid-19 pandemic
    • which is of, or similar to, a type of policy found to provide cover for that action in the test case, and
    • which requires the policyholder to prove the presence of Covid-19 within a particular area around their premisesIt may also be relevant to losses from later events such as ‘local’ lockdowns or subsequent national lockdowns.[2] 
[1] Business interruption insurance, 3 March 2021, https://www.fca.org.uk/firms/business-interruption-insurance

[2] Final guidance: Business interruption insurance test case – proving the presence of coronavirus (Covid-19), 3 March 2021, https://www.fca.org.uk/publication/finalised-guidance/final-guidance-bi-insurance-test-case-proving-presence-covid-19.pdf

Disclaimer:

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss that may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.

About the Author

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Saad Abbas Hussain heads the Financial Disputes and Banking department at Connaught's. He has accumulated extensive industry experience within dispute resolution, regulation, and financial services, having previously worked for the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS).

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