This insurance was, quite sensibly, taken out to cover them for losses and additional expenses caused by severe interruptions – such as a pandemic. Or so they thought. However, insurers have not agreed to cover pandemic-related claims made through business interruption insurance.
For the businesses that have invested in this insurance, the insurers’ refusal to accept pandemic-related claims removes a financial lifeline that many thought they could access. As businesses have become more and more stretched throughout the year, denial of this cover could leave some directors and business owners making very tough decisions around whether to continue to trade.
On the other side, if insurers do need to pay these claims, they will be faced with far more substantial pay-outs in response to coronavirus than they had anticipated.
In response to this disagreement, the FCA brought a test case involving eight insurance companies and 21 sample policy wordings. A judgment was issued on the 15th September. All in all, the court ruled more favourably for businesses.
Critically, the court found that disease wording was relevant for national instances of disease as well as localised ones which was important as the policies typically covered local issues only. However, the court also decided that cover due to “denial of access” and “hybrid” cover involving denial of access would need to be considered policy by policy, business by business.
The FCA welcomed the result. However, the insurers appealed to the Supreme Court. The appeal was heard in November, and a judgment is likely to be released in January.
This judgment will undoubtedly have significant impact. If it goes in favour of the businesses, it will create a potential lifeline of support as we continue to navigate the ongoing crisis. In that situation, the insurers will need to pay out Covid-related claims going forward. And it is also likely to require the insurer to pay Covid claims that it may have previously refused, too.
However, the length of time that will be taken to issue a decision is vital. Both the policyholders and the insurers need certainty. The longer the decision takes, the longer it will take for payment to be made if the case is decided in favour of the policyholders. This could be critical to the survival of many businesses, with many directors enduring extremely tough circumstances and assessing the viability of their business as the pandemic wears on.
An insurance payment could even be the determining factor in whether a business continues to trade.
The court are aware of the urgency for a decision and the process has certainly been faster than would normally be the case, but even on these expedited timescales, timing will be pivotal.
Regardless of the outcome at the Supreme Court, insurers are already changing policy wording to clarify what coverage a policy will provide. For those businesses with existing business interruption insurance, though, the beginning of 2021 will hopefully bring clarity, either way.
The article was first published in the Insider