Coronavirus: Business interruption insurance

As this is a fast-moving policy area, this briefing should be regarded as up to date on the day of publication.

Business interruption insurance compensates policy-holders for costs arising from events that close or severely disrupt operations. The coronavirus pandemic has led to many claims, as well as disputes about whether and how far policies do (or should) provide cover for losses.

Demands for government action

Many businesses wanted the Government to declare the novel coronavirus a notifiable illness and to order businesses to close. They expected that this would allow them to claim under business interruption policies. The UK Government made Covid-19 a notifiable disease on 5 March 2020 and advised many businesses to close on 16 March.

The importance of policy wording

But the insurance industry warned that few policies were likely to provide cover, even if the Government forced businesses to close. Over the past decade or so, insurers had redrafted policy wording to exclude diseases not explicitly named.

The Government and the industry advised businesses to refer to the specific wording of their policies. Businesses could also consider the other forms of support available.

Disputes and legal action

Many policy-holders argue that the wording in their policies is not clear or seems to permit claims, although their insurers have argued the opposite. Small businesses can complain to the Financial Ombudsman Service (FOS) about this.

The Financial Conduct Authority (FCA) has noted that few policy-holders are likely to be covered. It sought a judgment on a set of specific policy wording from the High Court. The court delivered its judgment in September 2020, largely ruling in favour of policy-holders. In January 2021, after an appeal, the Supreme Court also found in favour of policy-holders.

There are however continuing disputes about calculating payouts, notably on how to take account of government support offered during the pandemic.

The future

Some commentators noted that the scale of the disruption is such that the industry would not in any event be able to cover the losses. This might, they argue, be a case where the State should take charge, or at least seek a public-private partnership.