Could Your Business be Entitled to Business Interruption Insurance?

The Supreme Court’s ruling on business interruption insurance means thousands of businesses could not be entitled to crucial support.

London, UK - October 25, 2015: Known as The Law Courts, The Royal Courts of Justice, located in Westminster, houses the High Court and Court of Appeal of England and Wales. Many high profile cases have been carried out here.

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LONDON (Within the Law) - Thousands of small businesses will be due payouts over a Supreme Court ruling on business interruption insurance. However, the case is much more complicated than many media outlets have made out.

The 112-page judgement came after the FCA decided to test the wording on some business interruption policies. The court agreed that wording on many policies was vague and open to misinterpretation. As such many insurers policies effectively covered for COVID 19 even if that hadn’t been the intention. 

This case has been simmering since the first lockdown. Thousands of businesses which had been forced to close found that their business interruption insurance policies were not as robust as they had hoped. Insurers argued that only the most specialist policies would cover for what they said were an unprecedented set of circumstances. 

However, critics claimed vague wording on policies meant many businesses were led to believe they were covered. 

The FCA brought the case after thousands of businesses complained. It asked high court judges to decide whether the wording of the policies meant COVID 19 losses should be covered. The court agreed and provided guidance for 700 policies, which could potentially affect as many as 370,000 small businesses. 

However, the vagueness with which the decision was announced has led to an avalanche of claims with many businesses falsely believing they were covered. 

Key to the case was disease clauses in policies which cover losses by businesses which had been ordered to shut due to Coronavirus restrictions. Insurance firms had argued that localised lockdowns meant they were not covered. The judges rejected this argument paving the way for thousands of policies to be reassessed. 

However, the situation is highly complicated and each policy will now need to be assessed against the guidance. 

In general, the insurance industry has accepted the ruling. Huw Evans, director-general of the Association of British Insurers (ABI) said the case offered welcome clarity and those affected would be contacted by their insurer.  

“All valid claims will be settled as soon as possible and in many cases, the process of settling claims has begun,” he said. “Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.”

The British Insurers Broker Association also supported the move. 

“The application of COVID-19 as a peril in relation to business interruption insurance is a highly complex matter which is why, from the outset, we welcomed the FCA intervention in bringing this test case and the ultimate clarity the judgement now brings,” said Chief Executive Steve Baker. “What is needed now is for insurers to act swiftly to settle claims fairly and to clearly communicate the next steps in the process with brokers to allow them to help and advise their customers.”

He added that the judgment shows the need for insurers to add extra clarity to their policies. 

However, Stevie Jeffrey director of Firth & Scott Insurance Brokers complained about misleading information in the press. 

“Insurance is a commercial contract; what has been happening in the Supreme Court is a contract dispute of an unprecedented scale. Where a contract is unclear, courts can decide what the contract should be interpreted as,” he explained on LinkedIn. 

“What has happened is the Supreme Court has supported the previous decision that where policy wordings (part of the terms of your contact) are vague and ‘accidentally’ cover COVID-19 losses, insurers must now pay these claims even though that was not their intention.”

The case relates to policies in which the wording is vague. In those where explicitly excludes localised lockdowns, nothing will change. If you are a business, therefore, and wonder if your policy could be among those included, it’s a good idea to check the fine print for specific exclusions. You can check the FCA’s website for more specific information about the judgement. 

(Written by Tom Cropper, edited by Klaudia Fior)

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