'Covid Cover': Insurers to pay small firms for Covid-19 business interruption and lockdown losses

Yesterday, the Supreme Court handed down Judgment which found in favour of small firms receiving payments from their insurers for ‘business interruption’ during the Covid-19 Pandemic.

COVID-19 and the resulting public health measures taken by the UK Government have caused heavy financial losses to businesses around the country. Many businesses have insurance policies which cover them against loss arising from interruption to their normal business activities, due to various causes. Thousands of claims have been made under such policies for losses relating to Covid-19, which insurers have declined to pay on the ground that the policies do not cover effects (or certain effects) of the pandemic.

This appeal in the Supreme Court was urgently heard as test case brought by the Financial Conduct Authority (“FCA”) to clarify whether or not there is cover in principle for Covid-19 related losses.

As reported by the BBC, tens of thousands of small businesses will receive insurance payouts covering losses from the first national lockdown and, for some businesses, it will be the lifeline they need to continue trading.

What is this all about?

At the start of the pandemic in early 2020, many business owners turned to their insurance policies to see if they were covered for ‘business interruption’ and if they could claim for the losses incurred as a result of Covid-19.

At that time, many policies unfortunately did not cover human infectious or contagious diseases (as this can often come at a more costly premium). For those that did have wording to that effect, many insurance providers refused to make payments (as reported by the BBC last year). One of my clients, a local restaurant in Wimborne, did have a policy which listed 26 infectious or contagious diseases and viruses, including Measles, Mumps, Malaria, Typhoid Fever, Whooping Cough and Rubella. But he was told by his insurer that, as the policy did not explicitly state ‘Covid-19’, he would not be covered. At the time of his insurance being underwritten, Covid-19 simply did not exist. So, naturally, it would not be a named disease in the policy.

On 15 April 2020, the FCA took the decision to intervene and wrote a letter to insurance firms to warn it would be looking into the treatment of small businesses during the current crisis, and had set up a ‘Small Business Unit” to do just that.

Recognising the tricky wording on the business interruption policies, the FCA sought clarification from the High Court as part of a test case, aimed at resolving the contractual uncertainty around the validity of many business interruption claims.

The test case was based on a representative sample of policy wordings. The High Court’s decision on the test case was subject to a leapfrog appeal to the Supreme Court.

Can I now make a claim?

In the latest FCA update, it reports that “...the Supreme Court handed down its judgment on 15 January 2021 substantially allowing the FCA’s appeals and dismissing the insurers’ appeals. This means that many thousands of policyholders who have cover should now have their claims for Coronavirus-related business interruption losses paid”.

The judgment from the Supreme Court and High Court provides policyholders and insurers with clarity about whether customers have cover and can make a valid claim, and the amount due to policyholders (the judgment does not determine how much is payable under individual policies, but provides the basis for doing so).

The judgment is legally binding on the eight insurers that agreed to be parties to the test case. Those insurers are:

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

The judgment also provides authoritative guidance for the interpretation of similar policy wordings and claims.

As a result of yesterday’s decision, tens of thousands of small businesses will receive insurance payouts covering losses from the first national lockdown and, for some businesses, it will be the lifeline they need to continue trading. The insurance industry anticipates paying out over ￡1.8 billion in Covid-19.

Enterprise Act 2006 and Insurance Claims

On 4 May 2017, the Enterprise Act 2016 came into force and it added a new section 13A. The new addition provides that a term will be implied into every contract of insurance to the effect that if the insured makes a claim, the insurer must pay any sums due 'within a reasonable time'. If an insurer breaches this term the remedy could include substantial damages above and beyond the simple enforcement of the contract of insurance.

Whilst the Supreme Court decision does not deal with the application of the Enterprise Act 2016, and there are yet to be any cases which seek to rely upon the new s.13A, insurers could now see a rise in cases for damages as a result of further losses incurred, due to the insurers ‘unreasonable delay’ in making payment.

What is reasonable is still up for debate (as there is currently no legal precedent). However, section 13A(3) of the Act cites four specific factors that should be taken into account, as well as all the "relevant circumstances" of any particular claim.

The four specific factors are:

a. The type of insurance

b. The size and complexity of the claim

c. Compliance with any relevant statutory or regulatory rules or guidance

d. Factors outside the insurer's control.

This uncertainty around whether a claim under s.13A, may in fact assist insureds because it is only the insurer who will be taking the risk that they fall foul of s13A, and this is a risk that did not pay off for them in yesterday’s Supreme Court decision.

How can I help?

Well, firstly, I'm hopeful that the Supreme Court's Judgment will loosen insurer purses and you won't need my help at all. This was of course the intention of the FCA. However, If your insurance provider is still refusing to make payment, or not paying the amount of losses you think you have reasonably incurred, then please reach out. I will, through my firm, be able to help get what you are entitled to and may also be able to help claim for further losses and interest for late payment.

This is definitely an area that I'm passionate about - my brother is a chef and my parents own a cafe, and so I have witnessed first hand the disruption and upset caused. I am experienced in acting for the 'small guy' up against large financial institutions and, quite frankly, I just don't like to see people paying years' of insurance premiums only to then be turned down at the crucial time when they need to make a genuine claim.