Are you one of the many SME owners who have been forced to close your business, wholly or partially, during the Covid-19 lockdown? If you have Business Interruption insurance that covered closure due to disease, you may have been one of the policyholders refused payment by your insurer.
However, there’s good news. A ruling by the Supreme Court on the 15th January has established that in most cases closures due to Covid-19 are covered by these policies.
Business Interruption insurance can cover a range of circumstances. Some businesses are only covered for interruptions caused by property damage, such as fire or flood, but many include clauses concerning infectious or notifiable diseases and/or prevention of access and public authority closures or restrictions.
You’d think that having to suspend business due to Covid-19 would be covered by both, but some insurers disagreed. They argued that the diseases clause didn’t apply unless there were actually cases among the staff, and that the closures weren’t based on legally binding orders.
This has left many business owners, who believed that they were fully covered by their insurance, seriously out of pocket, putting their businesses at risk.
The High Court and the Supreme Court
Last year, the Financial Conduct Authority (FCA) brought a test case to the High Court. This consisted of one case representing each of the main policy types, seeking to clarify the legal position.
The High Court judgement found generally in favour of the FCA, but left a number of key issues unresolved, and the parties were unable to reach agreement. As a consequence, both sides brought appeals directly to the Supreme Court.
The Supreme Court dismissed the insurers’ appeal, but upheld the FCA’s contention that:
- policies should apply for both partial and complete closure
- policies should apply for mandatory closures that weren’t legally binding
- claims shouldn’t be reduced because the loss would have occurred with or without the closure, due to the pandemic
What Happens Next?
The Supreme Court’s decision is essentially a declaration of principle, which now needs to be formulated into a set of declarations. These will be produced in consultation between the Court, the FCA and the insurers.
If you’ve been affected by the dispute over Business Interruption insurance, you can keep up with developments through the FCA’s dedicated webpage. For more specific questions about how this applies to your policy, your insurance broker would be the best person to contact.
On the other hand, Business Interruption insurance isn’t the only aspect of getting your business back on its feet. You’re very welcome to get in touch with me to discuss making your credit control more focused as you go forward into 2021.