Business interruption insurance - key considerations

The widespread disruption and closure of businesses caused by the Covid-19 pandemic has brought into sharp focus the question of available insurance cover for losses under business interruption insurance (“BI”) policies and the extent of that cover.

Many businesses have suffered significant financial losses but frustratingly have found that cover is being refused by their insurer under their BI policy often simply on the basis that the cover does not extend to losses caused by the pandemic. Whilst it is common for BI policies to restrict cover to property damage, there may well be good arguments that cover should be provided by reference to terms which, for example, relate to notifiable diseases and/or denial of access. 

In certain cases where TLT have advised, insurers have also unilaterally curtailed agreed indemnity periods, citing reasons such as the phased UK Government lifting of lockdown restrictions.

In a very unusual step the Financial Conduct Authority (‘FCA’) has intervened to bring a test case in the High Court to seek clarity by way of a Court declaration as to the meaning of certain terms in a broad variety of BI policies. The  wording of 19 policies taken from 40 insurers have been selected as a representative sample. The case is listed to be heard in late July 2020 and is anticipated to provide clarity for policyholders and insurers albeit it will not deal with how much can be claimed under any particular policy. 

The insurers who are involved in the FCA test case are:

• Arch Insurance (UK) Ltd.
• Argenta Syndicate Management Ltd.
• Ecclesiastical Insurance Office Plc.
• Hiscox Insurance Company Ltd.
• MS Amlin Underwriting Ltd.
• QBE UK Ltd.
• Royal & Sun Alliance Insurance Plc.
• Zurich Insurance Plc.

In addition to the above named insurers, it is recognised that there are other insurers who will have BI policies which have similar wording and issues. The test case will be binding on the insurers who are a party to the proceedings and will be persuasive for others. If your business has a BI policy, you should prudently consider the following questions:

• Are there any terms in your insurance policy which could provide business interruption cover?
• If so, has a claim for business interruption losses as a consequence of Covid-19 been notified under the policy?
• If so, has cover been refused and on what basis?
• Finally, if cover has been confirmed are there now issues and disputes about the quantum of your claim?

TLT are currently advising clients on these issues. If you would like advice in relation to any of the above, please contact Craig Thompson or Julien Luke, partners in our Commercial Dispute Resolution team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions