Covid-19 'Are Your Business Interruption Losses Recoverable?

• Published date: 15 March 2021
• Subject Matter: Coronavirus (COVID-19), Government Measures, Insurance Claims
• Law Firm: Cleaver Fulton Rankin
• Author: Mr Michael King

Most smaller businesses have insurance policies which focus on property damage. Whilst business interruption may have been included; it was as a consequence of property damage. Some policies covered business interruption for other causes such as notifiable or infectious diseases, no-damage denial of access or public authority closures. In many cases, the insurers took the view that these policies did not cover COVID-19 and refused cover.

Following a hearing in November 2020, the UK Supreme Court has now handed down the appeal judgement in the test case brought by the Financial Conduct Authority (FCA) on behalf of UK based small and medium enterprises (SMEs). This sought clarity on the coverage provided by certain extensions of cover for COVID-19 related business interruption losses.

The FCA proceedings were brought on behalf of policyholders under various insurance schemes, including many SMEs forced to close or partially close due to the pandemic who were particularly vulnerable to losses. The Supreme Court held that business interruption losses resulting from the Covid-19 pandemic might be recoverable under various insurance policies. There is potential for the decision to affect 100s of policies across 10s of different insurers.

Four types of clauses that were considered by the Supreme Court:

Disease clauses

This type of clause covers business interruption losses resulting from any occurrence of a notifiable disease within a specified geographical radius of the insured premises.

The key issue was whether business interruption losses resulting from health measures taken in response to Covid-19 fell within this clause. The Supreme Court concluded that all individual cases of Covid-19 which had occurred at the date of any measure by the UK government were equally effective "proximate" causes of those measures.

Prevention of access and hybrid clauses

These types of clauses cover loss resulting from government or local authority actions preventing access to the premises. Hybrid clauses combine certain elements of disease clauses and prevention of access clauses. The Supreme Court decided that it can be seen that each of these clauses contains a series of elements which must be satisfied to trigger the insurer's obligation to indemnify the policyholder against loss. An instruction given by a public authority may amount to a restriction imposed if from the terms and content of the instruction, compliance with it is reasonably required. The Court agreed that...