Edgewater| Supreme Court judgment on BI insurance could be a “financial vaccine” for struggling business| January 2021

Last Friday’s Supreme Court appeal judgement is clearly going to be great news for many policyholders across the UK who have been awaiting a decision on whether their insurance will cover them for COVID-related losses.

Date: Monday 18 January 2021

The complex case involves business interruption (BI) insurance, a key part of commercial policies which is meant to pay out if a business is unable to trade as usual owing to an unexpected event.

Many small businesses, from restaurants & bars to hairdressers & hotels, claimed they should have received pay-outs from their insurers after the coronavirus lockdown left them unable to trade. Insurers have been accused by some of relying on technical legal arguments to wriggle out of their responsibilities. Some insurers had declined to pay out, arguing that BI insurance policies were not designed to cover a government-imposed lockdown. This prompted the UK financial services regulator, the Financial Conduct Authority (FCA) to launch a test case to provide clarity.

The FCA brought the case to the High Court in July last year in order to assist policyholders and insurers to resolve disputes in relation to the validity and interpretation of BI insurance policies. The FCA represented the interests of policyholders (mostly small to medium sized enterprises) that had purchased policies from eight insurers which agreed to participate in the case.

This final judgement covered issued such as disease clauses, whether businesses were denied access to their premises & the timing of lost earnings and it settles many questions. The judgement runs to 114 pages and it is estimated that there are around 700 policy wordings, from 60 different insurance companies that could be impacted, affecting around 370,000 businesses across the UK. The insurance industry expects to pay out over £1.8bn in COVID related claims.

Bryan O’Connor, Insurance Manager with local IFA and insurance broker, Edgewater Associates Ltd commented “the Supreme Court decision means that many thousands of policyholders in the UK will now be able to recover for business interruption losses caused by the pandemic. While this is potentially great news for local businesses, it is worth noting that the judgment is only legally binding on the eight insurers involved in the case, namely Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc & Zurich Insurance Plc although it could have an impact on other insurers who were not involved in the original case”.

Many insurers were clear in their wordings that losses relating to global pandemics are not covered and some even specify which diseases they provide cover for. As COVID-19 was a new and emerging disease, it is highly unlikely that cover would apply.

It is also worth noting that this was a decision of the English courts and isn’t binding on Manx courts, although certain elements may be referred to in the event of a dispute. The vast majority of insurance policy wordings are based on English law.

Policyholders should contact their insurance broker or insurance company to discuss the next steps but each case will have to be reviewed individually to determine if they are eligible before submitting a claim.