Many business owners have been left reeling from the disruption caused by Covid-19 and have sought to rely on Business Interruption Insurance attaching to commercial insurance policies. However, some Insurers have refused to pay out and claim that the pandemic is not covered, even in circumstances where some policies appear to include cover for infectious diseases and closures as a result of government restrictions.
The industry regulator, the Financial Conduct Authority (FCA), has adopted the position that in general, Business Interruption Insurance is unlikely to cover the current emergency, but “there are a number of policies where it is clear that the firm has an obligation to pay”.
The FCA has therefore announced that it will choose a representative sample of the contentious clauses and will seek a court declaration, on an agreed and urgent basis, to resolve uncertainty. Individuals can still access the Financial Ombudsman or the courts if they qualify and wish to do so.
The test cases will consider common clauses used in insurance policies to determine if they warrant a pay-out. The FCA has invited Insurers to provide a response before 15 May 2020 on whether they intend to decline applications for Covid-19 related claims.
The purpose of Business Interruption Insurance is to cover businesses against losses as a result of unexpected events. Clauses relevant to Covid-19 which may be included in insurance policies include the denial of access to premises and cover for infectious diseases.
The extent of protection is entirely dependent on the drafting of the individual policies, hence the proposed court action by the FCA
However, it is unclear when the Courts will make a ruling, and even if the declaration is in favour of the consumer, the decision might be appealed or challenges raised on which losses are attributable to the pandemic and the amount of any pay out. Certainty may be some way off therefore.
Nevertheless, the FCA court action is a welcome development for businesses and we would encourage business owners to check their insurance policies, notify brokers of any issues and file protective claims and or formal complaints where appropriate, pending the outcome of the FCA action. If your business has business interruption cover which has been declined or you wish to discuss the wording of your policy, please get in touch with the Litigation team at Worthingtons Commercial – [email protected] or 028 9043 4015.
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