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Further information from the FCA about the ruling

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Business interruption policies - who’s entitled to a payout?

High court ruling

In mid-September the High Court ruled against insurance companies which had refused to pay out on claims made on businesses interruption policies. The case was taken by the Financial Conduct Authority (FCA) on behalf of businesses that suffered significant financial loss or closure because of the coronavirus lockdown. The ruling affects most but not all business interruption policies but is mainly relevant to small and medium-sized enterprises (SMEs).

A cross-section of policies

The High Court looked at 21 sample policies of the type insurance companies issue to SMEs. It considered the key policy clauses which might entitle you to make a valid claim. The clauses apply where financial losses result from:

• Disease. This is for the consequences of the occurrence of a notifiable disease within a specified radius of your business premises.
• Prevention of access. This is cover where there’s been prevention or hindrance of access to or use of your business premises because of central government or another authority’s action or restrictions.
• Hybrid conditions. This refers to cover which is a hybrid of the first two categories, where restrictions are imposed on your business premises because of a notifiable disease.

The High Court indicated that businesses with policies including one or all of those clauses might be entitled to payment for their losses, especially those with the “disease” or “hybrid” clause. But what does this mean to policyholders?

Case-by-case consideration

Having a policy which includes one of the key clauses doesn’t mean you automatically qualify for a payout. You still need to show that your business suffered financial loss and that it resulted from the issues referred to in the policy clause. For example, say a delivery service increased its business during the lockdown but ultimately lost money because its main customer went bust and couldn’t pay. The insurance company’s liability to the delivery business, if any, is not clear. Ultimately, each claim must be considered on the circumstances which apply specifically to the claimant.

What’s the point of the ruling?

The decision means that if your policy includes one of the key clauses there’s no need for you to prove that it covers coronavirus-related financial losses. Unless the High Court’s decision is overturned you are entitled to make a claim and move straight on to demonstrating that the loss was caused by coronavirus and how much the loss was.

What next?

It seems likely that insurance companies will appeal against the ruling. In the meantime, if you have a business interruption policy, you ought to have received a letter from the insurance company telling you what they plan to do about existing and future claims. If you haven’t received a letter you should contact your insurance company or broker.

For more information from the FCA about the ruling, visit https://www.tips-and-advice.co.uk , Download Zone, year 22, issue 01.