Business Interruption Insurance: High Court rules in policyholders’ favour

The High Court ruled in favour of thousands of UK companies whose Covid-19 business insurance claims had been rejected.

In a first of it’s kind since the FCA was established in 2013, this case represents an unusual intervention by a regulator, who has stepped in on behalf of claimants to get clarification on whether a pandemic and government lockdown can be grounds for commencing insurance pay outs.

Lloyds of London’s underwriter Hiscox, Royal & Sun Alliance, Zurich, RSA and QBE are among the insurers accused of unfairly denying policyholder’s the right to claim. In what Lloyds of London have stated could become the biggest pay-out since 9/11.

What has been happening behind the scenes?

• In May insurers tried to justify their refusal to pay business interruption claims that arose during the onset of the Covid-19 crisis.
• The Association of British Insurers (ABI) claimed that cover for pandemics was not standard in any business insurance policy and therefore Covid-19 was not covered.
• The FCA estimated more than 60 insurers had policies that contained precise clauses which could be seen to include Covid-19 situations and that interim payments should be made if there were reasonable grounds to pay part of a claim.
• In light of missing insurance pay outs, thousands of businesses relied on tax payers money to help place employees onto the Government Furlough Scheme and take advantage of governmental grants to keep their businesses afloat.
• In July a legal case in which the FCA looked to claim against 8 major insurance companies began. The refused business interruption payments were estimated to be worth over £1 billion pounds.
• The High Court has reviewed the wording of 17 sample policies used by a variety of insurers to decide whether Covid-19 can trigger a business interruption pay out.
• The High Court ruled in favour of over 370,000 companies, finding that most (though not all) of the disease clauses in the samples policies analysed did provide Covid-19 cover.

What does this mean for UK businesses?

Although it may be too late for some firms who have had to shut as a result of being denied cover, today’s ruling provides ‘persuasive guidance’ which means that it will be much harder for insurers to forfeit future pay outs in such circumstances.

It is however extremely likely that the insurers will appeal the decision to the Supreme Court, and will continue to refuse to make any payments until the appeal process has officially concluded. This will sadly see further delays in eligible business owners receiving recovery payments and could result in further loss of business for the UK economy.

For advice on this or other contractual disputes contact our Commercial Litigation Team.