Business Interruption Insurance: Current State of Play

28th July 2021 Commercial Litigation

This note follows on from my previous bulletin regarding business interruption (‘BI’) insurance claims and provides an update as to the latest developments surrounding claims for interruption suffered as a result of the coronavirus pandemic.

The Supreme Court’s (UKSC) judgment to the Financial Conduct Authority (FCA) Test Case, handed down on 15th January 2021, does provide both the insured and insurers with a good degree of clarity. However, there continues to be a number of ‘grey areas’ that makes the claim process uncertain and still provides fertile ground for insurers to kick back on claims.

Current Financial Information

According to the latest FCA data, the number of BI claims for Covid-19 related losses that have been accepted by insurers sits at 40,531, whilst the number of claims where the insurer’s decision as to whether there is a valid claim is pending, sits at 6,900. These figures are remarkably small given the insurance industry told the FCA last year that anything up to 370,000 policies could be affected. This suggests either a huge amount of claims have not been made and/or they have been rejected. Our experience suggests an element of both.

To date, the total value of payments made by insurers in respect of BI claims where final settlements have been agreed and paid is £566,604,710.

A number of claims are yet to be finalised but insurers have made interim payments. The figures released indicate that 23,393 businesses have received an interim payment. We have seen instances where the interim payments have been nominal and our suspicion is that those levels of payments are being made to indicate to the FCA that interim payments have been made when ordinarily the payment would reflect the real value of the claim rather than a nominal sum of money.

At the Premises Wording

Although the Test Case did provide much needed clarity in relation to certain policy wordings, neither the decision of the High Court nor the UKSC explicitly addressed policy wording which provides cover where the insured peril, i.e. the occurrence of notifiable disease, occurs ‘at the Premises’. Although such wording is not fatal to a successful claim, the lack of guidance has left many insureds in the dark as to whether their policy will respond and many insurers unwilling to payout under such policy wording.

In many cases this wording might restrict the level of damages that can be claimed but such is the substantial and often nuanced difference in wording in policies that a close look at the policy wording is required as there is often good argument as to why a policy wording can be interpreted to give a more generous outcome for the insured business.

We have seen policies which on its wording enables losses to be claimed across an estate of properties even if it is not possible to satisfy the evidential burden of Covid-19 being present at each of the premises within the estate.

Insurers need to be reminded of the FCA’s stance that they need to ‘handle claims promptly and fairly and to provide reasonable guidance to help a policyholder to make a claim’.

Approach to Quantum

Once a claim has been accepted by the insurer, the question will then turn to the quantum of the claim. Naturally, this will depend on the specific wording alongside a detailed examination of the policy terms and it will be expected that robust evidence (i.e. financial data such as up to date and accurate accounts) will be provided in support of any claim. Of course, the policy itself may have limitations on the level of cover that will provided.

It is likely that the courts will still need to give guidance on issues which have not been resolved by the UKSC. An example is the recent report that Stonegate, one of the UK’s largest pub groups, has issued a claim worth £845m against three insurers, MS Amlin, Liberty Mutual Insurance Europe and Zurich at London’s High Court for Covid-19 related losses suffered as a result of the pandemic. The reports suggest that the insurers do not dispute that the policy responds to the pandemic, but rather that their liability under the policy is limited. A close eye will be kept on cases such as Stonegate’s in the hope that substantial judicial consideration will provide clarity as to how such policies ought to be interpreted. 

Government Support

How government financial support, including grants or furlough payments ought to be accounted for when deciding upon the correct level of quantum of any potential claim can be an area of contention.

On a general basis, it is the expectation by both the FCA and the government that specific grant funds intended to support businesses during the coronavirus pandemic will not be deducted from any business interruption claim payout. That said, an insurer’s approach may differ depending on the particular circumstances of the claim and the policy wording.

In discussions with the Association of British Insurers (ABI) and The Economic Secretary to the Treasury, a named group of insurers have agreed not to deduct certain specified grants including leisure/retail and hospitality grants from BI insurance claim payouts.

The position regarding furlough payments is more nuanced. To date, there has been no formal decision as to how furlough payments are to be treated and therefore the issue would need to be carefully considered in the context of any policy. The starting point from insurers is that such payments are brought into account when assessing losses but again the wording of the policy should be carefully considered.

Conclusion

Although the FCA Test Case did bring clarity to this complex area of law, it is clear there are still contentious issues that require further exploration to provide certainty in relation to BI insurance claims. It is hoped that over the coming weeks and months the continued litigation will provide this clarity for the sake of both insureds and insurers.

If you would like to discuss any issue arising from your business interruption claim please contact graham.small@jmw.co.uk.

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Graham Small is a Partner and Head of Department located in Manchester in our Commercial Litigation/Corporate Recovery and Insolvency department

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