COVID-19 and business interruption insurance – can business owners stop losing sleep?
Last week, the High Court handed down its judgment in the much publicised COVID-19 business interruption insurance test case, which was brought by the Financial Conduct Authority (FCA) on behalf of policyholders, the majority of which were small- and medium-sized enterprises. While the ruling has been hailed a success for policyholders, the extent to which insurers will have to pay out under such policies is still an unknown and the devil will certainly be in the detail.
On 15 September 2020, the High Court published its ruling in respect of a test case brought by the FCA concerning the extent to which holders of business interruption insurance policies would be covered against the adverse business effects of COVID-19. Essentially, the question asked was whether the pandemic would trigger a payout under various extensions included in a business interruption insurance policy. Although the ruling confirmed that yes, the pandemic may trigger such a payout, it is clear that the court did not intend that this should be taken as a blanket approach.
The test case considered 21 wording samples taken from the policies of eight different insurers. Specifically, the wording samples covered disease wording, access to premises wording and hybrid wording (where premises cannot be accessed due to public authority restrictions) and trends clauses and causation were also key issues. The court considered each wording sample and came to different conclusions depending on the exact wording used as well as the circumstances of the individual policyholder. As a result, policyholders with the exact same policy could be in very different positions in relation to the success of a claim. It is therefore crucial that policyholders carefully review their policy wording in detail and consider their circumstances before deciding whether a claim under the policy will bite.
It also remains to be seen whether the insurers will appeal against the decision; if they do, the appeal will be fast-tracked directly to the Supreme Court and the position of any insurance claim brought but not yet settled at that time may well be precarious.
While policyholders may be sleeping slightly easier this week, the Sandman may not be making an appearance just yet.
Craig Thompson is the Head of Forsters' Corporate team.
This note reflects our opinion and views as of 22 September 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.