The Covid-19 pandemic has had a significant and detrimental impact on small and medium businesses with many suffering losses as a result of not being able to open their premises or operate effectively for extended periods of time following the first lockdown in March 2020. The Government has offered an unprecedented level of support and funding in the form of grants and business interruption loans. However, many businesses who sought to make claims for their losses under their business insurance experienced rejection, with insurers citing a number of common reasons for doing so.
As a result of the sheer number of claims made and rejections suffered by businesses during the pandemic, the Financial Conduct Authority (“FCA”) brought a test case in June 2020 before the High Court in order to seek certainty on when businesses may be justified in challenging the decision of their insurer to reject their claims.
The test case asked the High Court to consider wording from a selection of standard clauses from eight insurers which had been relied upon when rejecting claims for business interruption, including those relating to “disease” or “denial of access” which were clearly of interest as a result of the circumstances surrounding the Covid-19 pandemic.
The High Court judgment, which was given on 15 September 2020, is largely positive for businesses who wish to seek to rely on their business interruption policies. The High Court found that policyholders would in the vast majority of cases be covered by “disease” clauses. The High Court also found positively in favour of policyholders being able to rely on “denial of access” clauses but noted that the interpretation of such clauses should be more narrow and should take into consideration all the circumstances, such as how the business had been affected by the lockdown and restrictive measures and whether the business had been subject to a mandatory closure order.
While many businesses will be pleased by the findings of the High Court, the judgment does not provide carte blanche for approval of all claims advanced by businesses as a result of the pandemic and each claim will still have to be considered against the facts of the judgment. The matter has now passed to the Supreme Court on appeal and the Supreme Court’s decision is expected shortly.
If your business has had a claim for business interruption rejected, or, if you are considering making a claim but are unsure whether the judgment handed down in the test case may apply to your situation, then please do not hesitate to contact the Commercial Litigation team and we will be happy to discuss the matter with you.