Hopes have been raised that hospitality businesses may be able to recoup some of their losses from covid-19 following a High Court ruling on business interruption insurance.
In a test case brought by the Financial Conduct Authority (FCA), the High Court ruled that policies with pandemic or notifiable disease clauses should be read as having cover for covid-19 in most cases.
The FCA brought the test case to urgently clarify key issues of contractual uncertainty for policyholders and insurers. It did this by selecting a representative sample of policy wordings issued by eight insurers.
The FCA argued that the “disease” and/or “denial of access” clauses in the sample should provide cover in the circumstances of the covid-19 pandemic. The judgment agreed that “most, but not all”, of the disease clauses in the sample provided cover. It also said that certain denial of access clauses provided cover, but this would depend on the detailed wording of the clause and how the business was affected by the government response to the pandemic, including whether it was subject to a mandatory closure order and whether the business was ordered to close completely.
The FCA said that 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.
“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat,” said Christopher Woolard, interim chief executive of the FCA. “Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.”
Woolard urged insurers to reflect on the clarity provided by the judgement and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
Trade associations representing hospitality businesses have previously urged insurers to meet their obligations after the British Institute of Innkeeping and British Beer and Pub Association revealed in May that just 3% and 4% of members respectively had received a positive response from their insurer following the lockdown.