Business Insurance Cover and COVID-19

15th Sep

When the COVID-19 pandemic hit the UK many business owners dusted down their business interruption insurance policies and breathed a sigh of relief at having taken them out. Unfortunately, though, many claims are being rejected by insurers on a number of grounds. By early May 2020, the FCA (the Financial Conduct Authority) knew of approximately 8,500 such claims totaling around £1.2 billion.
Seeking clarity, the FCA and the following insurers:-

Arch Insurance (UK) Ltd.
Argenta Syndicate Management Ltd.
Ecclesiastical Insurance Office Plc.
Hiscox Insurance Company Ltd.
MS Amlin Underwriting Ltd.
Royal & Sun Alliance Insurance Plc.
Zurich Insurance Plc.

brought a test case in the High Court asking the court to consider, and determine, the most common reasons for rejection of claims and the most common policy wording. The eight-day hearing took place during July 2020 with the court indicating that judgment will be delivered in mid-September.
Insurers raised a number of arguments including that existing policy wording covering, for example, infectious diseases occurring within a given distance of a policyholder’s premises, simply did not apply to a global pandemic (because this kind of cover applied only when the ‘peril’ was localised, and that a pandemic, by definition, is the opposite of a local peril).
Some insurers also argued that the insured could only rely on business interruption cover if the restrictions imposed on their business were legally enforceable – and many of the restrictions imposed during the Covid-19 pandemic did not meet this threshold. There were also arguments as to whether a pandemic was “an event” as defined in many policies and even whether losses sustained by businesses forced to close by the pandemic were caused directly by the pandemic or would have been incurred anyway and for unrelated reasons.
The court’s decision is eagerly awaited by insurers and policy-holders alike. We will publish details in the next edition of the Business Works magazine. In the meantime, guidance is available on the FCA website at: interruption insurance.

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