For example, they face the temporary closure of factories due to outbreaks of the disease among workers, disruption to supply chains. Many have also dealt with a drop in demand as restaurants, cafés and other hospitality venues are forced to limit their service offering or close completely.
The business interruption (BI) insurance test case was brought in June 2020 by the Financial Conduct Authority (FCA) on behalf of mostly small and medium sized businesses. These include hospitality venues, which have suffered heavy financial losses as a result of the pandemic and the public health measures taken.
Most policies usually only provide basic cover for BI as a result of property damage. But, the policyholders in this test case had taken out BI cover with certain non-damage clauses, such as disease clauses and prevention of access clauses. Some insurers accepted liability and some disputed it, and so the test case was brought to provide clarity and certainty.
Supreme Court judgment
The High Court's ruling was a resounding victory for policyholders. The recent Supreme Court judgment has broadened the circumstances in which losses may be recovered, for example where premises are only partially closed. The findings overall mean that more policyholders will have valid claims and some payouts will be higher.
Importantly, while the test case considered a representative sample of standard form BI policy wordings, it is estimated that 700 types of policies across over 60 different insurers and 370,000 policyholders could potentially be affected by the outcome.
The FCA is due to publish a set of Q&As for policyholders and a list of BI policy types that potentially respond to the pandemic based on data that it will be gathering from insurers.
The Supreme Court's judgment is complex. The extent to which food processing companies may be able to rely on it will depend on the exact nature of the BI issues they have experienced or are experiencing and the wording of their policies. They should urgently check their policies in light of the judgment and the FCA's guidance, and seek advice where necessary. No two claims are the same and all claims will be reviewed on a case-by-case basis.
Gwendoline Davies is a partner and Nick McQueen is a director at law firm Walker Morris
- Responding to the ruling, issued on 15 January, Emma McClarkin, chief executive of the British Beer & Pub Association, said:
This landmark ruling is great news for pubs and brewers who hadn’t received payouts on Business Interruption insurance thus far. It is a glimmer of hope in what is an incredibly tough time for our sector.
“The lack of payouts over insurance claims has added to the terrible woes and uncertainty our sector has faced over the last 10 months. It is why the BBPA backed the FCA in its campaign to resolve the issue.
“While our sector is far from out the woods yet, this announcement helps resolve some of the uncertainty it has faced on insurance cover and is warmly welcome.