A recent High Court ruling provides some much-needed hope for businesses continuing to suffer from the impacts of Covid-19. However, whilst the ruling has provided some clarity, it does not guarantee compensation for policyholders.
What was the issue?
Most businesses hold some kind of business interruption insurance. For SME’s this may only cover things like damage to property which in turn prevents trading. But, many policies also include clauses that cover the business against non-damage related business interruption events. This often includes policy extensions covering outbreaks of infectious diseases within a set radius of the business premises or against interruption caused by Government or Local Authority closures which restrict access to the trading premises. Policies will also often include caveats about how much insurers will pay-out when they consider there to be prevailing market trends that would have impacted profits independently of the event which led to the claim.
Until the recently, insurers have been largely split on whether they will pay out against these clauses. Regarding infectious disease policies, insurers have argued that they only apply where there are specific local outbreaks of a disease which are distinguishable from any wider outbreak. This would therefore mean that a global pandemic like Covid-19 would not be covered.
What did the High Court rule?
On 15 September 2020, the High Court made a judgement on a test case brought by the Financial Conduct Authority (FCA) on behalf of policyholders. In its ruling, the court decided that in most (but crucially not
all) cases, the policy wording of the relevant disease and restriction of access were applicable to the Covid-19 pandemic. This means that despite the arguments of insurers, policyholders with clauses regarding infectious disease or restriction of access due to Government measures could well be covered by their existing policies.
More specifically, agreeing with the position of the FCA, the court concluded that local outbreaks of Covid-19 formed ‘indivisible’ parts of the wider outbreak and therefore the majority of policy wordings do in fact cover policyholders. Crucially, the court decided that many of the policy wordings did not specify that cover was only provided for instances of disease that ONLY occurred within the policy area. This decision sets a very clear principle that disease clauses do cover wider pandemics with local outbreaks, rather than hyper-local instances of infectious disease only.
Court decisions on trends clauses will also have a critical impact of the payouts policyholders could receive. Insurers had contended that there should be a very narrow view of the insured ‘peril’ (insurance industry jargon for the event to which the insurance cover applies). In relation to disease clauses, this would have seen the definition of disease restricted to hyperlocal outbreaks only. The court completely rejected this argument. Had the insurers’ view been accepted and only outbreaks that could be identified as completely local been included in the definition, insurance companies could then have used the effects of the wider national and global pandemic to establish the baseline market trend against which they calculate their pay-outs. It should be clear to everyone that the effects of the Covid-19 pandemic are exceptional and it would be incredibly unfair to reduce claims against any baseline which takes these effects into account
This is definitely a victory for policyholders. Rulings on disease and trends clauses pave the way for more and fairer payouts.
But, whilst the ruling provides some cause for celebration for policyholders, it is anything but a complete victory. The court specifically stopped short of saying that the eight defendant insurers were liable against all 21 versions of the policy wording reviewed.
The principle set regarding disease clauses was relatively clear, although still not encompassing of all policy wordings. However, determinations made about clauses covering prevention of access caused by government interventions were less clear.
With regards to these clauses, the court did draw a link between the location of the emergency and the relevant authority’s actions. For example, many policies included terminology like:
“emergency in the vicinity”,
“danger or disturbance in the vicinity”,
“injury in the vicinity” and
“incident within 1 mile/the Vicinity”
In these cases, the court determined that these clauses were only designed to provide cover for very specific local emergencies and therefore would not cover general nationwide Government action to prevent the spread of Covid-19.
Similarly, the ruling determined that each policy’s specific wording around prevention of access made a huge difference in whether these clauses were triggered. For example, where a business continued to operate during the lockdown in some reduced capacity, BUT has a policy clause with wording which concerns ‘prevention’ of access rather than ‘hindrance’ of use, the clause may not come into effect.
There was a range of rulings made by the High Court regarding these clauses which were very specific to the individual wording of each policy. For that reason, whilst policyholders might have cause to be optimistic about their chances of receiving pay-outs against their disease clauses, prevention of access rulings are more problematic.
What should policy holders do?
Business owners should feel cautiously optimistic. The ruling definitely tips the legal balance in Covid-19 business interruption claim disputes in the favour of the policy holder in a number of ways. Policyholders should ask their solicitors to provide a detailed analysis of how this ruling impacts them, based on the exact wording of their policies. With this information in their arsenal, business owners should keep fighting. Speak with our business interruption insurance solicitors.
2020 has thrown up more challenges than anyone could have imagined. The UK’s business owners should not have to face the ongoing challenges of the pandemic alone. Supporting the recovery of business in the UK is going to be a joint effort from business owners, government, insurance companies, suppliers, customers, and indeed, law firms. Here at Ashmans Solicitors, we are ready to help.
Contact our solicitors now
Do you need expert legal advice in relation to a business interruption insurance claim? Contact us now at Ashmans Fleet St Solicitors.
For a free initial enquiry, call us now on 0333 009 6275. We are available 24 hours a day, 7 days a week.