Covid-19: Does your BI Insurance Policy hold up? – A guest blog by Nicole Kitching

To say that it has been a difficult time for business owners as a result of Covid-19 would be an understatement. Whilst some businesses have found new ways to stay afloat, other businesses have sadly suffered serious losses due to Covid-19, whether this be financial losses, trading losses or even loss of customers. In some extreme cases, all three apply.

In cases like this, both individuals and businesses have the choice to take out what is known as a business interruption insurance policy. These policies help to mitigate circumstances and cover any loss of revenue or profit. They can also be taken out to cover any non-physical damage. Instances include the closure of a premise, denial of access or in relation to a contagious disease. However, it should be noted that it is quite rare for businesses to take this approach.

With this in mind, the question remains: “to what extent will BI policies apply in the context of Covid-19?”


What does the Financial Conduct Authority intend to do?

In April of this year, the FCA had stated that most BI policies would not cover for losses related to Covid-19. This, however, was revisited in June where the FCA published details of a test case it has lodged against eight insurers before the High Court.

The FCA have stated that BI policies are generally complex and can cause uncertainty depending on the type of policy that has been taken out and the specific wording within the policy. This can cause frustration among customers who believe they have a valid claim only to be rejected by their insurer. With more and more cases cropping up, it is the intention of the FCA to liaise with the High Court to resolve the issues arising from BI policies.

The FCA’s key objective is to achieve “maximum clarity for the maximum number of policyholders”.

Richard Cramer, managing partner at Front Row Legal, has been following the case closely. Having kept up to date with the FCA’s blogs on BI policies, Cramer believes that the FCA are playing their part in addressing the relevant issues stated above. This is especially noted in the FCA’s “Finalised Guidance”, a publication for firms who need further assistance when it comes to making a claim or complaint against an insurer. Cramer was also impressed with the number of submissions the FCA received from policyholders and other stakeholders relating to the scope of the test (roughly 270 submissions) as this shows the FCA’s seriousness in the matter.

When it comes to the aspect of Covid-19, the FCA would like the courts to not only focus on the policy wording but also ask other fundamental questions: Can Covid-19 be classed as an infectious and contagious disease"? Did the virus occur in the 'vicinity' of an insured premises? And what hurdles will the insured party need to overcome if this is the case?

Along with the wording of the sample policies, the courts will also need to consider the interpretation of any relevant clauses as a whole. Cramer suggests looking closely at any "trend and variation" clauses. These clauses tend to appear in a lot of BI policies. This is essentially where an insurer has the power to reduce the amount payable due to factors affecting its ability to trade. Given the last few months have included social distancing and economic uncertainty, a thorough analysis of these clauses will prove useful to many customers.

Furthermore, the FCA are cooperating with insurers and looking to agree a timeline of key events. This will include looking at when Covid-19 first arrived in the UK, the impact it has had on businesses and any virus related regulations which have come into force.

Next steps

Overall, the test case as it stands looks promising, with Cramer believing the FCA have a strong case on their hands. It will, however, take a good number of months before we see any significant outcome. In the meantime, the FCA will continue to engage with policy holders and insurance intermediaries throughout the test case process.

Should the FCA succeed in their claim, this could mean a considerable amount of money to be paid to affected customers. At this point in time, the FCA are preparing their Reply which is to be filed on the 3rd July. Once all relevant skeleton arguments and replies have been served, an 8 day court hearing should take place in late July.


For more information on the FCA’s test case and further updates, please visit the following websites:

Front Row Legal are a boutique law firm that specialises in Sport, Media and Business Law in England and Wales. They have specialist knowledge in these areas of law, which means they can help where many law firms won’t have the experience. They are based in Leeds with a national client base.

Published July 1, 2020

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