Five things to consider when claiming from your Business Interruption insurance policy

In September 2020, the High Court found broadly in favour of the policyholders but, given the economic and legal significance of the decision, the Financial Conducts Authority and six insurers appealed a number of points in the High Court Judgment to the Supreme Court.

Welcome relief

On 15 January this year, the Supreme Court handed down its judgment. The judgment found again substantively in favour of the BI insurance policyholders.

Specifically, it found that the pandemic, and the government and public response to it, can cause business interruption losses.

This landmark ruling will provide welcome relief and certainty for thousands of UK businesses, but particularly those in the travel industry, who continue to suffer the devastating economic effects of the pandemic.

Here are five points that policyholders should be aware of:

1. The Supreme Court determined that the "disease clauses" in the various policies that it had been asked to consider provided cover for losses arising from Covid19.

Disease clauses state that an insurer should pay out if a business is closed due to certain infections. These clauses usually provide cover for losses resulting from the occurrence of a disease within a specified radius of the insured premises.

The Supreme Court decided that individual cases of Covid-19 within a radius specified in the policy could be the legal cause of the losses suffered by a business. So for example, if a travel agent can establish that there has been at least one case of Covid-19 within the prescribed radius, then they may be entitled to claim under the disease clause in their policy for losses occasioned by their being required to close;

2. The Supreme Court also determined that the "prevention of access" clauses it had been asked to consider should be interpreted so as to include the government-mandated restrictions. Prevention of access clauses state that an insurer should pay out if something is preventing a business from accessing its premises.

The Supreme Court decided that restrictions, such as those imposed by the government in March 2020, could apply and held that if a business was forced to partially close, such as an airport restaurant being forced to close its seating area, it could still be determined as a prevention of access under the insurance policy.

3. As part of the proceedings some of the insurers argued that in order to succeed with a claim, the insured must show that their loss would not have been suffered had it not been for the insured peril.

They also argued that they should not be liable for losses the insured had suffered as a consequence of the pandemic and the government and public response. These arguments were rejected, as the Supreme Court held that the policy may still respond even if the incident, ie an incident of Covid-19 within a specified radius of the insured’s premises, was part of a large number of connected events and those events also contributed to the losses.

4. Despite the positive headlines, there remains uncertainty for BI insurance policyholders as to the extent of pay-outs from insurers.

While the decision is binding on the insurers whose policies were considered as part of the case, there will remain issues of causation and loss to be determined.

For example, many policies have something called "trends" clauses pursuant to which the insured is likely to be required to carry out a detailed accounting exercise by reference to historic financial trends to claim losses.

Further, the right of each policyholder to claim for their losses will remain subject to any limitations or restrictions set out in each specific policy.

5. It is important for any policyholder who suspects that the may have a BI claim to take prompt action. Insurers may seek to avoid liability on the basis that they have not been promptly notified of an event giving rise to a claim. If an insurer rejects a BI claim, this is not necessarily the end of the road as there may be further steps that a policyholder can take, particularly if they consider that their insurer is wrong, such as pursuing a complaint to the Financial Ombudsman Service.