Business Interruption – is your business covered?

In the current crisis, many small businesses have turned to their insurance policies, to see if they can claim for business interruption (‘BI’).  They may have a shock:  either they are not covered for BI, or their insurer may say the BI cover does not apply in the Covid-19 lockdown.


BI cover usually forms part of the policy which deals with property damage.  If the damage is covered by the policy, and if the damage results in an interruption to the business, the insurer would normally be expected to pay out on a BI claim.   However, there is uncertainty as to whether such claims will succeed where the interruption is related to the Covid-19 pandemic.  In each case, much will depend on the wording of the policy, but sometimes it is difficult to tell whether the wording applies to the current situation, which is unprecedented.


In early May 2020, the Financial Conduct Authority (‘FCA’) announced that it intends to obtain a court declaration to resolve any uncertainty in relation to BI insurance cover.  The FCA has sought information from policyholders, a number of different insurers, and the Association of British Insurers, and will select a number of claims which are already proceeding through the courts, bringing these together under one test case, to seek clarification from the courts.


The FCA believes a decision from the courts will provide assistance to insurers and assureds alike.  The intention is that, by running a test case through the courts, the FCA will obtain clarity sooner, and at a lower overall cost, than would be the case if left to individual court actions.


The FCA’s recent statement (15 May 2020) explains, “The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the representative sample considered. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.”


However, businesses should be aware – the FCA has already made up its own mind: in the majority of cases, the FCA considers insurers should not be required to pay out on BI claims arising from the Covid-19 pandemic.  This is likely to cause a great deal of concern and distress to business owners who may have previously thought they had some degree of protection.


If your company has made a claim for business interruption, your insurer may well wish to wait until the test cases have gone through the courts, before making a decision on the claim.  In the meantime, the FCA has confirmed that it expects all insurers to comply with all existing obligations when handling claims and complaints from customers, including clear communication and, where a decision to pay out has been made, to do so promptly, using interim payments where appropriate.  Unsatisfied policyholders will still be able to make a complaint to the Financial Ombudsman Service, although the Ombudsman may, too, wait for clarity from the courts.


Insurance brokers (and their liability insurers) will no doubt be watching closely.  It is to be expected that, if a business believed it should have been covered for BI, but discovers it is not, the business may look to the broker to provide an explanation and also, perhaps, compensation.


Bartons Solicitors have commercial lawyers with expertise in insurance law and litigation.  We are regularly instructed to advise on behalf of insurers and we will also accept instructions from business policyholders to investigate disputes with the insurer. If you own a business and have experienced problems when claiming for business interruption, we may be able to assist.  Feel free to contact us for a no-obligation discussion, to see if we can help.