On 16 March 2020, in response to the increasing number of cases of Covid-19 in the United Kingdom, the Government issued guidance requesting that people begin working from home where possible; avoiding unnecessary travel; and stopping non-essential contact with others. On 23 March 2020, the Government placed the country into ‘lockdown’ and closed all non-essential premises.

Many businesses made claims on their insurance policies for Business Interruption suffered as a result of the Covid-19 outbreak and subsequent lockdown. Insurers’ responses to such claims was to refuse to cover the losses. This left businesses wondering why they had paid for Business Interruption cover if they could not claim on their policy.

As a result, the Financial Conduct Authority (FCA), which is the body that regulates insurance providers in the United Kingdom, requested clarity from the High Court (the FCA Test Case) about the correct interpretation of various Business Interruption policies. The decision was published by the Court on 15 September 2020.

The FCA Test Case decision

The Court considered Business Interruption policies provided by eight different insurers and 21 different insurance policies. It looked at three categories of policy:

  1. Disease Clauses;
  2. Hybrid Clauses; and
  3. Denial of Access Clauses.

Disease clauses

Disease clauses are often an extension to a standard Business Interruption insurance policy. However, some policies may include disease clauses within their standard Business Interruption cover. The disease cover extension may be termed “infectious diseases,” “notifiable diseases,” or simply “diseases”. They will typically cover Business Interruption which follows or arises from the occurrence of a notifiable disease within a specified radius of the insured premises. Covid-19 was deemed a notifiable disease across the whole United Kingdom by 6 March 2020.

The FCA Test Case concentrates on the specific interpretation of key aspects of typical disease clauses. For example, how does the court interpret what could be considered as an “occurrence” of Covid-19? Further, did cases of Covid-19 within a measurable distance from the insured premises cause the Business Interruption? Or was it the presence of the disease in the country as a whole?

The response from the Court is generally positive for insured businesses. The Court decided that many of the policies that included cover for diseases should respond to the Covid-19 outbreak. If your insurer has declined cover and your policy includes disease cover, you may be able to challenge the refusal (declinature).

Hybrid clauses

“Hybrid clauses” include cover for restrictions imposed on premises and the presence of a notifiable disease.

The FCA Test Case concentrates on the specific interpretation of key aspects of typical insurance cover under a hybrid clause. Many of these policies state that, to make a valid claim, you must have been unable to use your business premises due to restrictions a public authority imposed following an occurrence of a notifiable disease.

The FCA Test Case considered variations of the wording of the specific cover. It considered the correct interpretation of a ‘local’ public body (where that is a requirement of the policy). It also looked at the extent to which guidance and Regulations issued by the Government meant that a business was ‘unable’ to use its premises.

Whether an insurer will provide cover under a ‘hybrid clause’ depends upon the type of business you run. Your insurer will look at the extent to which the guidance and Regulations allowed your category of business to remain open during the ‘lockdown’ period. Non-essential businesses (e.g. hairdressers) that were required to close may be covered under the terms of their policy. Businesses such as solicitors that were permitted to remain open but advised to work from home may have more difficulty.

Denial of Access clauses

The final category considered by the FCA Test Case was “denial of access” clauses. These policies typically provide cover where Government or local authority action or restriction prevents or hinders access to business premises.

Whether or not cover is available will depend upon the specific wording of your policy. Some policies provide cover where the Government imposed restrictions. Under those policies, cover may be available those businesses (e.g. gyms and swimming pools) forced to close following Government decisions. Other policies, however, provide cover arising from decisions made by a ‘local’ public authority. Unless you can show that your business was forced to close as a result of the outbreak of the disease locally rather than nationally, such a policy may not provide specific cover.

Denial of access clauses require analysis of the specific policy wording in light of the decisions provided in the FCA Test Case about how specific wording should be interpreted in the context of the Covid-19 outbreak as a whole. If you have been denied cover under a denial of access clause and would like advice about whether you should challenge the denial, please do not hesitate to contact us.

Making a claim

Responsibility for making any claim for Business Interruption lies with the business and should be submitted with the assistance of your broker. Policies often include strict time limits by which you must submit your claim. Failure to adhere to those timescales can be a complete bar on insurance cover being available. Therefore, if you think you have a claim for Business Interruption arising from the Covid-19 pandemic, it is important that you liaise with your broker at the earliest opportunity. Of course, the guidance continues to change in response to the continuing pandemic. Therefore, should any new restrictions affect your business, we would encourage you to speak to your broker.

If you have submitted a claim for Business Interruption which has been declined by your insurance provider and would like advice about the merits of appealing the declinature in light of the Court’s decision, our Dispute Resolution team can help. Call us on 0800 988 7756 for a free initial discussion about your case.