Following the outcome of the high court ruling on the 15th September 2020 regarding whether insurance companies should be held accountable to Business Interruption Claims relating to closures and losses during the COVID 19 Global Pandemic in 2020, Herbert Smith Freehills took a test case to the high courts to fight on behalf of policyholders for their losses.
Business interruption insurance will potentially cover loss of profits and additional expenses that an insured suffers as a result of insured damage to physical property such as following a fire or flood: Many policies, however, include specific extensions for matters other than physical damage. It is this non-damage business interruption cover that was the issue here. They considered the following extensions within certain insurance companies policy wording:
- Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
- Prevention of access/ public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
- Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.
The court looked at a sample of wordings from insurers and while different conclusions were reached in respect of each wording, the Court found in favour of the FCA on the majority of the key issues, in particular in respect of coverage triggers under most disease and ‘hybrid ‘ clauses, certain denial of access/public authority clauses, as well as causation and ‘trends’ clauses.
The judgment should therefore bring welcome news for a significant number of the thousands of policyholders impacted by COVID-related business interruption losses.