Business Interruption Insurance policy

The High Court has handed down its judgement in a test case brought by the UK’s Financial Conduct Authority (FCA) on whether a sample of business interruption (BI) policies provide cover in relation to the Covid-19 pandemic.

Thousands of business, which have suffered financial losses as a result of Covid-19, could receive a pay-out under their business interruption cover after the High Court found that a majority, but not all of the policies of the 21 samples which were analysed, provided cover.

Ordinarily, BI insurance policies cover loss of revenue or profit experienced by a business following damage to property, in addition to the costs incurred in mitigating such disruptions. Usually, property damage as a result of a storm or fire, acts as the trigger for the coverage. However BI cover for non-physical damage, such as closure of premises or denial of access, or cover which is explicitly related to infectious or contagious diseases can also be taken out by businesses. It was the latter cover that was the focus of the test case.

The court separated the 21 sample policies into 2 categories:

• Disease clauses, the wording of which provides cover for BI as a result of a disease within an area.
• Prevention of access, providing cover for policyholders where access has been restricted due to government restrictions.

In relation to the provisions purported to provide cover for BI in the context of a notifiable disease within a specified radius or within the vicinity of the insured premises. For policyholders who have cover for a specified radius, the court concluded that the cause of the BI was the notifiable disease, in this case Covid-19, of which the numerous individual local outbreaks formed indivisible parts due to the infectious nature of the disease. It was therefore the court’s view that the local outbreaks of the disease as part of its occurrence elsewhere in the country.

For policyholders whose cover includes notifiable disease provisions but where the disease is required to be in the vicinity of the premises, the court found that the scope of such a clause could cover England and Wales or a more limited area, depending on the specific wording used.

The Court also considered a range of provisions providing cover where access to premises had either been prevented or hindered due to government restrictions. The conclusion reached was that such clauses should be interpreted in a more restrictive manner than those providing cover for notifiable diseases in a particular area surrounding the premises. This is due, in part, to the varied government restrictions imposed on different business and the use of premises which are set out in different categories at Schedule 2 of The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020. It was also highlighter that policies which require restrictions from the government or authority to be imposed can only mean restrictions imposed by statutory instrument as opposed to guidance and advice from the government or indeed, the prime minister.

It is therefore clear that the protection afforded to each policyholder will be determined by the specific wording of each policy. Each policy therefore needs to be considered against the High Court’s judgement to consider what that means for each particular policy.

If you would like to discuss anything featured in this article or would have any landlord and tenant questions you can contact Nick Armitage, Head of Litigation at Ramsdens by calling 01422 410 570 or email nick.armitage@ramsdens.co.uk.