The Impact Of Covid-19 On Property Damage Claims

• Published date: 29 January 2021
• Subject Matter: Insurance, Coronavirus (COVID-19), Insurance Laws and Products, Insurance Claims
• Law Firm: BLM
• Author: Mr John O'Shea

The COVID-19 pandemic continues to cause unprecedented disruption to businesses and has seen widespread disquiet for insurers faced with challenges to cover interpretation and criticism of their response.

Central to the insurance claims landscape in 2020 was the business interruption test case brought by the Financial Conduct Authority which goes far beyond the technicalities of the selected policy wordings and which has presented a huge reputational challenge for the insurance industry as a whole.

Aside from issues over the construction of cover extensions, there are other both immediate and long term issues for insurers to grapple with as a consequence of COVID-19, which we examine below. To discuss any of the below issues and find out more about our team of experts, click here.

COVERAGE

On 15 January 2021 the Supreme Court resolved the FCA's high profile business interruption (BI) insurance test case substantially in favour of the regulator and the two policyholder groups involved. The outcome is obviously important for BI insurance and also highly relevant to policy interpretation and to causation of loss.

The Supreme Court adopted a somewhat different approach to that of the Commercial Court - there wasn't a Court of Appeal decision here because the urgency and the importance of the case justified it being leapfrogged straight to the Supreme Court - but reached the same conclusion; that being that as a matter of principle, cover was in place for business interruption losses arising during the March 2020 lockdown. Lord Briggs was refreshingly clear about this: "all of the insuring clauses which are in issue on the appeal to this court ... will provide cover for business interruption caused by the COVID-19 pandemic."

He also added that "the trends clauses will not cut it [indemnity under the policy] down in the calculation of the amounts payable." What he means here is that reductions in turnover sustained in the run-up to the lockdown (so-called pre-trigger losses) are to be disregarded when valuing BI claims sustained during the lockdown. A related point, also tending to favour increased indemnity, is the reversal of the Orient Express Hotels case. Overturning it means that wider effects of the cause of the particular insured business interruption are to be taken into account when valuing BI claims. In essence, the trading loss to be valued is based on what the business's turnover would have been had it not been required to close and had wider lockdown measures not been in place.

As a result of the decision the FCA expects insurers to contact policyholders very promptly to progress their claims. Each of those will need to be assessed carefully on the bases set out in what is a hugely important judgment.

UN-OCCUPANCY AND ALARM WARRANTIES

Un-occupancy conditions are there to protect against such losses as freezing pipes, escape of water and theft...