The Supreme Court Decision on Business Interruption Insurance Claims

The Supreme Court decision on business interruption insurance claims has come as great news to many thousands of policyholders who had previously had their claim for business interruption, as a result of Covid pandemic, rejected.

The test case brought by the Financial Conduct Authority (FCA) highlighted the significant financial losses suffered by many SMEs as a result of trading restrictions brought about by the various regional and national lockdown conditions.

The main issues of contention were the interpretation of the extent of business interruption under the policy and the interpretation of infectious and notifiable diseases and the impact that has on their ability to trade.

The Main Issues

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented:

‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.

‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

‘As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.’

The Supreme Court Decision

The argument put forward by the FCA was fairly straightforward. They argued that the “disease“ and “prevention of access“ clauses within the policies were there to provide appropriate cover in such circumstances as have resulted from the current pandemic. The pandemic has caused the loss and therefore they were entitled to claim on the policy.

The matter was originally heard in the High Court in September 2020 and the decision was favourable to the policyholders when it stated that most of the clauses in relation to disease and prevention of access did provide cover and that the issues they had encountered following and as a result of the pandemic triggered protection under such clauses.

The Insurers appealed that decision, however, the appeal was dismissed by the Supreme Court although for different reasons from those of the High Court.

Following the FCA appeal, the Supreme Court ruled that appropriate cover may be available for partial closure of premises, full closure, and for mandatory closure orders that were not binding. In addition, the court stated that the claim should not be reduced on the basis that the loss would have resulted from the pandemic regardless of the need for closure.

Overall, the decision was very much in favour of the policyholder with an increase in valid claims and the level of expected pay-outs.

What This Means For Policyholders

The Supreme Court decision was in relation to fourteen types of policy issued by six insurers, however, there are wider implications across the insurance industry and the decision has resolved many key issues that will apply across the sector.

The decision is not to be regarded as a green light for all policies to be paid and there will still be issues over contractual interpretation and causation issues. The judgment does not set out how much is to be paid but provides the support and basis for doing so.

Whilst a great step forward in resolving the issue of rejected business interruption insurance claims, there will still be issues to be determined, argued, and resolved.

How We Can Help

  • If you feel that your business interruption insurance claim has been unfairly rejected simply complete the form at the bottom of this page and choose ‘disputes’ from the drop-down menu.
  • If you prefer, you can email us direct at details of the policy and the claim that has been refused.
  • For an initial chat and overview as to how we may be able to help please call our team on 0113 224 7818.