Does my business interruption insurance cover me for Covid-19 related losses?


Since the start of the Covid-19 pandemic over a year ago, many businesses have been uncertain whether their business interruption insurance policies provide them with cover for losses they have suffered as a result of the pandemic and its related government-imposed restrictions.  There was so much uncertainty regarding these issues that the Financial Conduct Authority (FCA) took a test case all the way to the Supreme Court (Financial Conduct Authority v Arch Insurance (UK) Ltd & others [2021] UKSC 1) in order to obtain some much needed clarity.

The issues raised by the FCA’s test case were so complex that the Supreme Court’s judgment came to almost 300 pages (when combined with the earlier High Court judgment, which addresses some issues not directly covered by the Supreme Court).  During the proceedings, the Courts considered 21 different sample “non-damage business interruption” policy clauses (i.e. business interruption clauses which did not require there to have been physical damage in order to be triggered).  Although the chosen sample policies were generally those aimed at SMEs, some aspects of the Supreme Court’s decision potentially have far wider applicability.

It would be impossible to condense all of the detail of the Supreme Court’s decision into one short article, but the key points to take away from the judgment arguably relate to the three different types of “non-damage business interruption” policy clauses that the Courts considered.

“Disease” Clauses

So-called “disease” clauses are ones which are triggered if there is an “occurrence” of the disease within a specified (local) geographic area.

Most of the confusion in relation to these clauses related to the interpretation of the word “occurrence”, and whether or not the national pandemic generally could be considered an “occurrence” of the disease which triggered the policy cover.

The Supreme Court confirmed that there needed to be a specific occurrence of the disease within the specified area in order to trigger the cover, because an “occurrence” meant something that happened at a particular time, in a particular place, and in a particular way, and so could not include a generalised and ongoing nationwide situation like the pandemic.

“Prevention of Access” Clauses

A “prevention of access” clause is one which is triggered if access to the insured premises is prevented due to the actions of the government (or similar authority).

The key issue considered in relation to these clauses was whether there needed to be a “complete” closure of the business to trigger the policy cover.  The Supreme Court confirmed that although there did have to be a “complete” closure (i.e. a hindrance or impairment to access was not sufficient), it was sufficient if only a discrete part of the business was “completely” closed.

The best example of this in practice is probably a restaurant that also operates a takeaway business: if the restaurant business was “completely” closed, it would be likely to trigger the policy cover even if the takeaway business was continuing to trade.

“Hybrid” Clauses

As you might expect, a “hybrid” clause is a combination of the other two clauses, in other words, one which is triggered by an inability to use the insured premises due to the government imposing restrictions as a result of an occurrence of a disease.

Many of the issues relating to “hybrid” clauses overlap with “disease” and “prevention of access” clauses, but the Supreme Court also confirmed that while the restrictions in question needed to be mandatory, they did not have to be legally binding at the time they were imposed.

Other key issues from the Supreme Court’s judgment

The Supreme Court also had to consider what losses had been “caused” by the relevant insured event, because the insurers were arguing that the losses claimed had actually been caused by the national pandemic and not, for example, by the specific occurrence of the disease in the specified local area.

The Supreme Court disagreed with the insurers’ argument, and ruled that even if the specific occurrence of the disease in the specified local area was not, on its own, sufficient to cause the losses suffered, it was still one of multiple concurrent causes of the losses suffered.  In other words, the effects of the specific occurrence included the effects of the restrictions imposed nationally in response to multiple occurrences of the disease.

The Supreme Court also clarified that, when calculating the losses suffered by a business, the insurers should not use any drop in income caused by the pandemic before the policy was triggered as a means of reducing the calculation of the profits lost by the insured business.  In other words, the losses should be calculated by reference to what the business would have earned in normal circumstances, completely ignoring the effects of the pandemic.

Issues not addressed by the Supreme Court

The FCA test case only looked at “non-damage business interruption” clauses, and even then, the Courts only considered the three subcategories referred to above.  For example, the Courts did not consider “non-damage business interruption” clauses that referred to a specified list of diseases, and so that subcategory of clauses was still open to be considered in a different case (Rockliffe Hall Ltd v Travelers Insurance Co Ltd [2021] EWHC 412 (Comm)), where the High Court ruled that the policy was not triggered if the cover was defined by reference to an exhaustive, static list of diseases which did not include Covid-19.

There is also some speculation that the High Court’s conclusions in the FCA test case on certain issues that were addressed in the High Court but which were not included in the appeal to the Supreme Court, may now be incompatible with the Supreme Court’s subsequent decision and its comments on the “spirit and intent” of the relevant insurance policies.  However, until any of those points are heard as part of another case, the High Court’s earlier decision in the FCA test case on those issues still stands.

Equally, while the Supreme Court’s judgment provides much needed clarity and guidance on several key issues, the decision is only (strictly speaking) binding in relation to the 21 sample policies that were considered.  The applicability of the Supreme Court’s decision will therefore depend heavily on how similar a business’ specific policy wording is to one of the policies considered in the FCA test case.

Therefore, as each case will still largely be determined on its own specific facts and policy wordings, unless your policy is one of the 21 samples considered by the Supreme Court, there may still be some work needed to accurately apply the guidance from the FCA test case to the facts of your specific claim.

For more information on this or any other issue relating to insurance disputes, please contact Michael Axe by emailing Michael or by calling him on +44 (0)1628 502448.

This article is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this article.

Michael Axe

Senior Associate
Commercial Disputes

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