In the early stages of Covid-19 many businesses contacted their insurers to see whether they had business interruption cover that would provide at least some compensation to them. In many cases insurers declined cover.
To seek clarity across as many cases as possible as to whether cover should have been granted, the Financial Conduct Authority (“FCA”) brought test case proceedings to determine coverage issues. Judgment has now been handed down by the High Court. Permission has been given for the case to bypass the Court of Appeal and will now proceed on an expedited basis to the Supreme Court – to deliver the final word.
In the meantime, what was the approach taken by the High Court? Was the approach adopted in favour of businesses that seek cover, or in favour of insurers?
The policy wordings that were considered fell into three main categories relating to non-damage BI cover:
- Disease wordings which provide cover for BI resulting from a notifiable disease, ordinarily within a specified radius of the insured premises;
- Prevention of access which provide cover where a business cannot access its premises as a result of government or other restrictions; and
- Hybrid wording which are a blend of the disease and prevention of access clauses.
The insurers argued that cover was only provided for a local occurrence of a notifiable disease and if there was a wider spread (as there has been with Covid-19) then only the local outbreak and its effects on the business would be covered and only where they could be separated out from the wider effects.
The FCA argued that local outbreaks were indivisible from the wider effects and that the requirement of proximity to the business would be satisfied as a result. Alternatively, that Covid-19 was so widespread there were many different effective causes.
Following consideration of various factors the Court favoured the FCA’s approach. Obviously this is promising for businesses that have had claims refused or held up, pending the outcome of the test case.
Prevention of Access
The Court construed the prevention of access clauses more restrictively that the majority of the disease clauses. It is likely that the availability of cover will depend on the exact terms of each individual policy. In general terms, this cover is intended to provide cover for an event happening in a local area at a particular time, as opposed to a national ‘lockdown’ arising from a pandemic.
For cover to apply under these clauses it is likely that access would have to have been prevented in response to a localised occurrence of the disease and the general lockdown provisions that were imposed across England and Wales in response to the pandemic would not suffice. This conclusion was more ‘insurer friendly’.
In light of the above, as may be expected a close examination of any hybrid clauses is required. The court adopted a ‘disease’ approach to these clauses as above, but required there to be a mandatory restriction or prevention in respect of the prevention of access element.
Although it is clear the High Court’s approach will not provide an open door for all types of BI claims, it ought to assist in clarifying the position and encouraging successful claims, particularly under notifiable disease clauses. Notwithstanding this, each policy, and its wording, should be considered carefully against the judgment to understand the implications and likelihood of a successful claim.
Of course, it will be open to the Supreme Court to decide whether or not to adopt the approach of the High Court or to come up with an alternative approach. It is likely that this hearing will take place this year, though for many businesses there will still be uncertainty in the meantime.
If you require any clarification of your position at present please do not hesitate to contact us at email@example.com or 029 2034 5511 and speak to our commercial dispute team.