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Business Interruption Insurance Test Case: what does the verdict mean for my business?

Following the publication of the Supreme Court judgment in the business interruption insurance test case, the ABI has received questions about what the verdict means for businesses around the UK.

We wanted to share information for those businesses on how to find further details. Five key points are:

  1. Insurers are committed to settling valid claims as quickly as possible
  2. ABI members have a clear set of principles for the handling of BI claims to reassure customers and reinforce existing best practice in claims handling
  3. You will be contacted by your insurer if you have an ongoing claim or complaint against a policy that is affected by the test case
  4. The Financial Conduct Authority (FCA) has set out its expectations of insurers where there are valid claims under business interruption insurance policies affected by the test case. A letter, which can be read here, was issued to CEOs of insurance firms on Friday 22nd Further information from the FCA regarding the test case process can be found here:
  5. The test case does not apply to all business interruption insurance policies. The FCA has published information on the policies that were found by the High Court and Supreme Court to potentially provide cover. There are a number of insurers who were not part of the test case and whose BI policies are not affected by the Supreme Court ruling. Insurers will have written to customers if their policies were affected by either the High Court and/or the Supreme Court rulings.

Frequently Asked Questions

What types of business interruption insurance policies were affected by the test case?

The test case does not apply to all business interruption insurance policies. In a letter issued to CEOs of insurance firms, the FCA said “It remains the case that most SME BI policies are focused on property damage and only have basic cover for BI as a consequence of property damage, so are unlikely to pay out in relation to the Covid-19 pandemic and its effects.”

The test case considered a sample of 21 different types of policy wordings put forward by eight insurers. These policies contained clauses on non-damage business interruption arising from the occurrence of an infectious disease within a radius of the business premises and/or relating to the prevention or denial of access to the business premises. Some policyholders had questioned if they would provide cover for Covid-19 losses to their business and insurers, along with the FCA, wanted to provide clarity for these policyholders as quickly as possible by asking the courts to decide the meaning and effect of these policies.

Following the High Court hearing, and appeals from all sides at the Supreme Court, the FCA has now set out which policies were found to potentially provide cover.

The FCA stated that of the 21 types of policy in the sample, seven do not provide any cover for Covid-19 losses, eight provide cover where Covid-19 occurred within a radius of the insured premises and six provide cover in certain circumstances and for certain types of business, typically where the business was required to close by law.

Insurers are currently assessing which claims fall into these categories and are in contact with all customers affected.

Why aren’t all businesses who hold a business interruption insurance policy covered by the verdict?

The test case does not apply to all business interruption insurance – the majority of these policies only provide cover for physical damage to the property and this has been acknowledged by the FCA. In a letter issued to CEOs of insurance firms, the FCA said “It remains the case that most SME BI policies are focused on property damage and only have basic cover for BI as a consequence of property damage, so are unlikely to pay out in relation to the Covid-19 pandemic and its effects.”

The test case considered a sample of 21 types of policy wordings covering non-damage business interruption from eight different insurance firms’, and the final findings of the courts confirmed that seven of these types of wordings do not provide cover at all. The FCA has published information to help policyholders understand which policies could potentially provide cover.

Should policyholders contact their insurer?

Insurers will contact businesses who have an ongoing claim or complaint against a business interruption insurance policy which might be impacted by the ruling.

If you have considered the information published by the FCA on which policies are potentially covered, believe you could have a valid claim or have an ongoing claim or complaint but haven’t yet heard from your insurer then we would recommend making contact with your insurer. If you have purchased your cover through a broker, you should consider getting in touch with them.

How soon will anyone with a valid claim receive a pay out from their insurer?

Insurers are committed to settling valid claims as quickly as possible. The time frame in which a payment will be made will vary depending on the nature of each individual claim, which can often be complex, and the time taken to gather information to establish the value of each claim.

However, in many cases, the process of settling claims has already begun. Where cover does apply to business interruption claims, ABI members have a clear set of principles for the handling of these claims to reassure customers and reinforce existing best practice in claims handling. This includes, where possible, to make interim or part payments where claims are ongoing and in some cases this has already started.

Further information can be found here.