Business interruption insurance policies are usually taken to protect one’s business from financial losses during periods when one cannot trade due to an unexpected event.

But, after the widespread business disruption due to the COVID-19 lockdown, policyholders faced a tough time as the insurers had a narrow view of whether the policy would cover pandemic-induced financial loss. The insurers rejected the claims debating the meaning of some policy wordings.

The Financial Conduct Authority (FCA) brought a test case before the High Court, intending to provide certainty for policyholders and insurers. But the high court offered a complicated decision, and thus the policyholders appealed to the supreme court.

The ruling of The Supreme Court

The Supreme Court has taken a logical, policyholder-friendly approach that would allow policyholders to claim under their insurance policies for their business losses caused by the pandemic. Here are some rulings:

• If you have a business disruption policy, you will be able to cover your losses caused by the COVID-19 pandemic. However, to claim, there should have been at least one incidence within the stated geographical area at the relevant time.
• Insurers cannot use the trends clause to avoid the cover payable to policyholders as the COVID-19 has wider consequences. The scope of this clause was limited to capture the factors unrelated to the insured damage. According to the Supreme Court, the COVID-19 pandemic implications are related to the insured damage and thus fall outside the scope of the trends clause.
• Prevention of access clauses may be pleaded if you could not use the premise for specific business activity. It is also applicable if you were unable to use a part of your premises for your business activity. Besides, the applied restrictions need not be legally binding. Measures or instructions given by a public authority are also enough.

What Does This Mean for You?

All in all, if your business had a disruption due to the 2020 lockdown and your business interruption policy was in place, it may be possible for you to claim for the losses your business sustained at that time.

However, it should be noted that numerous small businesses can benefit from the current ruling, but only a section of these might get a payout from their insurance company.

So, if you have had an insurance policy during the start of the pandemic or renewed your current policy, the policy will have a change in the policy wording to include the current change. Your policy will clearly mention if the losses due to pandemic are included or not.