Business interruption insurance claims:

What now for policyholders?

by Gavin Pearson

Many people will have seen headlines this week in relation to the High Court ruling that some insurers should have paid out to policy holders for business interruption (BI) losses caused by lockdown. (“FCA –v- Arch & Ors).

Businesses across a wide range of industry sectors had assumed that their BI policies would cover them for closures resulting from COVID-19.   However, insurers had disputed these claims, arguing that policies were never meant to cover such unprecedented restrictions and that they were not intended to cover a Government lockdown. It has been estimated that around 370,000 businesses, generally SMEs, were affected, and a particularly large number of those being hospitality businesses.

In order to provide clarity, the Financial Conduct Authority brought a test case, based on a sample of 21 policies underwritten by eight different insurers (Hiscox, RSA, Aviva, Arch, Argenta, MS Amlin, Ecclesiastical and QBE).  

The High Court Judgment this week found that the majority of policies did provide relevant cover, but that it was subject to the specific wording in the policy, as well as the basis of the claim being brought. Ultimately, the Court concluded that COVID-19 and the responses of Government and public, were a single cause in the context of policy coverage. However, it is important to note that not all policies will pay out (for example, Hiscox has estimated that it will only pay out on fewer than 1/3 of its UK BI policies).

It appears likely that the insurers will seek to appeal aspects of this case. However, in the meantime, it is expected by the FCA that insurers should be communicating with policyholders in a timely manner to discuss what the Judgment means in the context of their policy and to progress their potential claims. There is nothing to stop policyholders reaching settlement with insurers prior to the outcome of any appeal.

Where policyholders are entitled to claim for BI losses, they will need to ensure that claims that they put forward are quantified in a credible and reasonable manner, which should assist in expediting settlement with insurers. Our Forensic Accounting team is experienced in quantifying business interruption losses (including cases which arise specifically from COVID-19), having acted in multiple cases for both claimants and insurers and adopts a proportionate and cost effective approach to cases.   

We are always happy to discuss potential matters on a without obligation basis to see whether we can assist. Please get in touch with me, Rob Parry or Gordon Hodgen.