Can I claim Business Interruption (BI) insurance for COVID-19?
11 February 2021
The Supreme Court’s judgment in the Financial Conduct Authority’s (FCA)’s BI test case will enable more SMEs to make successful claims and recover the financial losses incurred because of the pandemic.
This page was updated on 21 April 2021.
Looking back into the FCA’s business interruption insurance test case launched in 2020
During 2020 many businesses were forced to close their premises due to the coronavirus pandemic which led to a significant financial loss. As a result, several organisations attempted to claim these losses under their Business Interruption (BI) insurance policies.
Even though most SME policies mainly focus on property damage, some also cover BI from other causes, in particular infectious or notifiable diseases ('disease clauses') and prevention of access and public authority closures or restrictions ('prevention of access clauses').
Whilst in some cases, insurers accepted liability under these policies, in others, insurers disputed this. Because of the lack of clarity surrounding the basis on which some firms were making decisions in relation to claims, and its potential to create ongoing uncertainty around the validity of many BI claims, the Financial Conduct Authority (FCA) sought clarification from the English High Court as part of a test case.
The test case was based on a representative sample of 21 policy types which the FCA used to argue that the 'disease' and 'prevention of access' clauses provided cover in the circumstances of the coronavirus pandemic and that the trigger for cover caused policyholders’ losses.
The High Court resolved the majority of the key issues, but as an agreement could not be reached, insurers and the FCA appealed to the Supreme Court. On 15 January 2021, the Supreme Court’s judgement dismissed the insurers’ appeals whilst substantially allowing the FCA’s appeals.
What does the Supreme Court judgement mean?
The judgment delivered means that:
- cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders
that were not legally binding - valid claims should not be reduced because the loss would have resulted in any event from the pandemic
- two additional policy types provide cover, taking this to a total of 14 types from the representative sample of 21
Essentially, this means that more policyholders will now
have valid claims and should see their coronavirus-related business interruption losses paid. To establish the validity of a claim, each policy will have to be considered against the published detailed judgement.
What should businesses do next?
1. Find out if you can claim under your BI insurance policy
Small businesses can use the FCA’s policy checker to examine whether their policy will cover business interruption losses due to the coronavirus pandemic. The guide checks the wording used in your policy to establish if it’s the same as, or very similar to, the 21 policies in the ‘representative sample’ which were considered in the FCA’s test case.
2. Access guidance on how to make a claim
If the policy checker indicates that you are likely to be covered, refer to the published FAQs for policyholders with business interruption insurance for detailed information on how to make a claim.
On 3 March the Financial Conduct Authority (FCA) published the final guidance setting out how to prove the presence of coronavirus (COVID-19) in a particular area and this can be accessed here. To further assist policyholders to prove the presence of COVID-19 in their policy area, the FCA has created an online calculator which can be accessed here.
Businesses that are not satisfied with their insurer's assessment of their claim may be able to refer their case to the Financial Ombudsman Service.
More information is available on the Financial Conduct Authority's website. For more personalised advice call us on 0161 237 4128 or email us at BGH@growthco.uk
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Read moreThe information provided is meant as a general guide only rather than advice or assurance. GC Business Growth Hub does not guarantee the accuracy or completeness of this information and professional guidance should be sought on all aspects of business planning and responses to the coronavirus. Use of this guide and toolkit are entirely at the risk of the user. Any hyperlinks from this document are to external resources not connected to the GC Business Growth Hub and The Growth Company is not responsible for the content within any hyperlinked site.