Business interruption insurance

First published: Last updated: 23/03/2023 See all updates

Find out about how we obtained legal clarity on business interruption (BI) insurance during the coronavirus (Covid-19) crisis. 

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Following the coronavirus pandemic, which led to widespread disruption and business closures resulting in substantial financial loss. Many customers made claims for these losses under their BI insurance policies. There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.

The issues surrounding BI policies are complex and it was recognised that they had the potential to create ongoing uncertainty for both customers and firms. The FCA accordingly sought clarification from the High Court as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims. The FCA advanced arguments on behalf of policyholders in the public interest. The test case was based on a representative sample of policy wordings. The High Court’s decision on the test case was subject to a leapfrog appeal to the Supreme Court.

The Supreme Court handed down its judgment on 15 January 2021 substantially allowing the FCA’s appeals and dismissing the insurers’ appeals. This means that many thousands of policyholders who have cover should now have their claims for coronavirus-related business interruption losses paid.

The judgment from the Supreme Court and High Court provide policyholders and insurers with clarity about whether customers have cover and can make a valid claim and the amount due to policyholders.

    The Supreme Court judgment

    On 15 January 2021, the Supreme Court handed down its judgment on the issues on appeal from the High Court. Its judgment relates to the High Court’s interpretation of common clauses in 13 out of the 21 business interruption policies in the representative sample. The judgment also considers whether the prevalence of coronavirus in or near the business was the effective ‘cause’ of losses.

    The Supreme Court judgment is complex, runs to 112 pages and deals with many issues. A summary of the key points is below. Our legal team at Herbert Smith Freehills have published a bulletin summarising the judgment on their website, which may be referred to for further detail.

    On 13 July 2021 the Supreme Court ordered that the High Court declarations be varied as set out in the Annex to the Order. The declarations record the outcome of the judgments in the test case and declare whether the policies in the representative sample potentially cover business interruption losses arising from the coronavirus (Covid-19) pandemic and in what circumstances. It nevertheless remains important to read them alongside the judgment, which provides the Court’s reasoning and explanation that helps in understanding and applying the declarations. This table highlights the most relevant declarations by policy type.  

    The FCA argued for policyholders that the ‘disease’ and ‘prevention of access’ clauses in the representative sample of 21 policy types provide cover in the circumstances of the coronavirus (Covid-19) pandemic, and that the trigger for cover caused policyholders’ losses.

    The High Court’s judgment last September said that most of the disease clauses and certain prevention of access clauses (12 policy types from the sample of 21, issued by six insurers) provide cover and that the pandemic and the Government and public response caused the business interruption losses. The six insurers appealed those conclusions for 11 of the policy types, but the Supreme Court has dismissed those appeals, for different reasons from those of the High Court.

    On the FCA’s appeal, the Supreme Court ruled that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover. This will mean that more policyholders will have valid claims and some pay-outs will be higher.     

    The judgment is legally binding on the eight insurers that agreed to be parties to the test case. Those insurers are:

    • Arch Insurance (UK) Ltd
    • Argenta Syndicate Management Ltd
    • Ecclesiastical Insurance Office Plc
    • MS Amlin Underwriting Ltd
    • Hiscox Insurance Company Ltd
    • QBE UK Ltd
    • Royal & Sun Alliance Insurance Plc
    • Zurich Insurance Plc

    The judgment also provides authoritative guidance for the interpretation of similar policy wordings and claims. It can be taken into account in other court cases, including in Scotland and Northern Ireland, by the Financial Ombudsman and by the FCA in looking at whether insurers are handling claims fairly. The judgment does not determine how much is payable under individual policies, but provides the basis for doing so.

    The High Court judgment

    The High Court handed down its judgment on 15 September 2020. Large parts of the High Court’s judgment (and the associated declarations) are superseded by the judgment of the Supreme Court. Previously, we said that certain parts of the High Court’s judgment were not appealed and therefore had a status similar to that of the Supreme Court’s judgment as described above. However, the High Court’s recent decision in Corbin and King v Axa provides further important guidance which, to some extent, supersedes the initial High Court ruling in the test case. Find out more about this decision.

    FCA guidance and statements for policyholders

    We stopped providing regular updates to the guidance and statements for policyholders that we published following the test case (see list below) on 16 August 2021. This means that they may not fully reflect the current law. There are other resources which you can use to see if there have been recent rulings which might affect your claim. The Commercial Court has information on Covid-19 business interruption insurance cases. If policyholders want to look up a particular judgment themselves they can be found at the British and Irish Legal Information Institute.

    Many solicitors firms also provide updates on recent cases; for example, our legal team during the test case, Herbert Smith Freehills, provide updates on significant cases though the timing may vary. Some barrister chambers also provide updates on their websites or blogs, particularly if their barristers are instructed on the case.

    When new court rulings are published, firms will need to consider carefully how the ruling may impact the interpretation of their policies, and their claims and complaints handling, considering their obligations to their customers.

    Where it is identified that a new court ruling has a possible wider beneficial impact for customers, we expect firms to provide either:

    1. details of any proposed remedial action to ensure that the beneficial impact of the final outcome is applied to similar groups of customers, and/or those customers potentially affected, and/or
    2. where appropriate, reasons why such remedial action may not be carried out

    Where it has been determined that a new court ruling has no wider beneficial impact, we would expect firms to explain to their customers why it was considered that there was no wider beneficial impact to other potentially similarly impacted, or other potentially affected, customers.

    Where firms decide not to reopen claims – for example, because they consider they would have reached the same outcome even applying the reasoning in the new ruling – we expect firms, in appropriate circumstances, to be open and transparent about their reasons for doing so. Customers should be given a chance to consider those decisions and complain if they disagree with them.

    We published the following guidance and statements for policyholders:

    • Policy checker and FAQs which help policyholders find out if their insurance policy may cover business interruption losses caused by coronavirus and what they can do next.
    • Final guidance for policyholders on how to prove the presence of coronavirus, which is a condition in certain types of policy. We have published a calculator to assist policyholders prove the presence of Covid-19 in their policy area. The results can be used to help make a claim under their business interruption insurance policy. This calculator supports the content with in our Finalised Guidance, specifically Chapters 7, 8 and 9. 
    • A list of policies assessed by insurers as, in principle, capable of responding to Covid-19 as a result of the test case.
    • FCA’s Dear CEO letter dated 22 January 2021, which includes information about how we expect insurers to handle claims and complaints following the judgments, making interim payments where appropriate, ‘stopping the clock’ on claims and complaints deadlines during the test case, full and final settlements, and considerations that should be taken into account when applying deductions of government support received by policyholders.
    • Table setting out the outcome of the test case and key paragraphs of the judgments according to policy type in the representative sample of 21 policy wordings.
    • Table highlighting the most relevant declarations by policy type for policyholders.

    Page updates

    : Editorial amendment page updated as part of website refresh
    : Information added under FCA guidance and statements for policyholders