All eyes on Business Interruption (BI) insurance Insurance policy coverage articles do not often feature in the mainstream media, but current times are anything from normal. Circumstances of the pa...
All eyes on Business Interruption (BI) insurance
Insurance policy coverage articles do not often feature in the mainstream media, but current times are anything from normal. Circumstances of the past 12 months have changed this and brought insurers into the spotlight.
So, why have insurers been in the news recently?
The effects of the COVID-19 pandemic on the vast majority of businesses across the UK have been nothing but devastating.
Business interruption insurance principally provides cover for the financial losses due to an interruption caused by a sudden and unforeseen material damage to insured property, from perils such as fire, storm, flood, accidental damage or malicious damage.
Whilst the majority of commercial policies require this material damage to occur prior to triggering Business Interruption cover, a limited number of policies will respond to other causes under non-damage extensions. However, it is widely regarded within the insurance sector that these policies were not genuinely written as a deliberate divergence from ‘standard’ cover to pick up pandemic losses. The insurers’ intent was to give localised breakout of known or named diseases e.g. legionnaires, E.coli and salmonella. These diseases have a traceable origin and can be brought under control relatively easily. Furthermore, policyholders can arguably control their risk, pre and post loss. It was easy to see how businesses such as licenced premises and those serving food could suffer from a non-damage loss if food became contaminated or a disease broke out within the premises or even in the localised area. Policy wordings and extensions were drawn up by insurers to cover this perceived risk. The issue for the FCA and ultimately the courts was the way some of these extensions were worded and this brought cover and the wording of these non-damage extensions into dispute.
Large number of Covid 19 related claims have been made for the Business Interruption arising from these non-damage extensions and whilst few insurers initially accepted liability, others immediately and persistently disputed the cover for a nationwide loss or pandemic was in place. The majority of insurers who provided these non-damage extensions said the intention of these was not to give cover for a pandemic which, through Government intervention and lockdown control, has caused most UK businesses to suffer an interruption to their business and a loss of income.
This has ultimately led to a widespread concern about the lack of clarity regarding those insurers’ policy wordings which provided non-damage extensions. The Financial Conduct Authority (FCA), under their principles which every regulated insurance company has to operate under, chose to look into this situation and take matters to the courts.
Which Non-Damage Extensions?
The subject of scrutiny has been the 'disease' and 'prevention of access' clauses (when these don’t require actual damage). The very limited number of insurers who offer these extensions within their policies, in general argued their policies do not cover and were not designed or intended to cover this nationwide pandemic loss.
The whole matter has ended up in the highly publicised High Court Test case and then appealed in the highest court in the land, the Supreme Court. The FCA arguing for policyholders that the 'disease' and 'prevention of access' clauses in the representative policy wording samples of eight insurers do indeed provide cover in the circumstances of the coronavirus pandemic.
The final judgment was handed down on the 15th January 2021, ending this legal argument and confirming the effect on the challenged policies and a number of similar policies in the wider market which will be forced to comply with the judgement.
What does this mean for your policy?
Businesses with business interruption (BI) insurance can now refer to an online policy checker provided by the FCA. Based on the outcome of the FCA test case, the online tool is a general guide aimed at assisting policyholders to see if their coronavirus-related BI losses are likely to be covered.
You can access the tool here:
How does the policy checker work and what documents do you need?
The policy checker helps you to check whether the wording in your policy is the same as, or very similar to the 21 policies in the ‘representative sample’ considered by the Courts in the FCA’s test case.
If so, the High Court and the Supreme Court rulings provide important guidance on the way your policy should be interpreted and on the strength of your claim, based on the wording of your policy.
The policy checker will indicate whether your policy is likely to provide cover. The policyholder FAQs will give some further information about how to make a claim.
You will need your insurance policy wording including any schedule for the period of any lockdown.
If you believe you have cover, what should you do?
Policyholders should find details of their policy wording with their renewal confirmation email or similar correspondence. If they are not familiar with the document (their contract with the insurer) they should study this and follow the FCA’s instructions. If the FCA policy checker indicates it’s likely your policy will respond, you should follow the claim notification process which should also be outlined with your policy wording or with your confirming correspondence.
Offer of assistance
We are happy to assist policyholders to determine if their policy wording has been judged effective by the UK Courts, whether the actual wording was part of the samples challenged by the FCA or not.
For Assistance Contact