Covid business interruption cover

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Covid business interruption cover: A win for small businesses?

A 114-page judgment has been handed down by the Supreme Court in the matter of Financial Conduct Authority v Arch Insurance (UK) Ltd & Others [2021[ UKSC 1. The case is being hailed as a much-needed victory for small businesses during this pandemic-hit time.

Supported by the Financial Conduct Authority and with the agreement of eight insurers, a test claim was taken to the courts to determine whether or not the policy wording in various business interruption insurance policy clauses allowed for cover during these unusual times.

A variety of arguments were raised on behalf of the insurers, including the fact that Covid is not a “notifiable disease” which is, in many of the 21 clauses reviewed, a prerequisite before payment is made.

Reviewing 21 differently worded clauses, the Supreme Court considered that interpretation “seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue.” (per Lord Briggs).

Being applauded by small businesses and insurance companies alike, this judgment will see payments being made to many of those who have been hardest hit. The industry is expecting to pay out in excess of £1.8bn, with all valid claims being paid as swiftly as possible.  Insurers will be contacting their clients to discuss what this means for them.

But is this Covid business interruption cover decision truly a victory?

Certainly, for many small businesses that rely on regular income and are currently not trading, this will be a huge relief to them.  But already, commentators are saying that with such a large payment being needed, a huge increase in premiums will be required in the future to help insurers recoup their losses, while pencils are being sharpened to write new clauses to ensure future pandemics are not covered.  It also begs the question of what will happen to those small businesses that have had to close as insurers refused earlier requests for payments under their business interruption clauses.

These will undoubtedly be considerations for another day, but in the short term, those businesses that had business interruption cover on their professional insurance policies, may be able to survive this rotten pandemic after all.

The full text of the judgment can be found here