Q&A: Am I insured for COVID-19?

Question

I am the tenant of commercial premises in Manchester on the ground floor of a building occupied as a hairdressing business. I have suffered severe disruption as a result of the coronavirus pandemic, including the closure of my business during the national lockdowns, and I am currently unable to trade from the premises. I am exploring the availability of government loans and grants to assist in these circumstances, but am I able to make a claim under my business interruption insurance policy? The policy contains a clause covering losses as a result “of any occurrence of a Notifiable Disease within a radius of 25 miles of the Premises”.

Answer

A claim under the “disease clause” of your business interruption policy is likely to succeed because a recent test case in the Supreme Court determined that clauses, like the one in your policy, will be triggered if the policyholder can establish that there was at least one case of Covid-19 within a 25-mile radius of the premises. Whether a claim will ultimately be satisfied by insurers will depend on the precise wording of the entire policy and whether you have notified the insurers of a claim within the timescales required by its terms, as well as complying with any other applicable conditions in your policy.

Explanation

The Supreme Court recently handed down judgment in a test case concerning sample policy wordings of business interruption insurance policies: Financial Conduct Authority v Arch Insurance Ltd and others [2021] UKSC 1; [2021] PLSCS 12. This examined 21 insurance policies covering business interruption held by eight insurers. The case was brought by the FCA under the Financial Markets Test Case Scheme, which enables a claim to be determined in a test case without the need for a specific dispute between the parties, where there are issues of general importance and there is a need for immediately relevant and authoritative English law guidance.

The outcome was largely in favour of the FCA, benefiting many small and medium-sized businesses with business interruption insurance that have suffered losses as a result of the public health measures taken by the UK government during the pandemic.

Your policy appears to contain a “disease clause”, which is a provision for insurance cover for business interruption loss caused by the occurrence of a notifiable disease at or within a specified distance of the policyholder’s business premises. The court held that where the policy contained a disease clause, similar to the wording in your policy, you are not required to prove that your losses were suffered solely as a result of one or more cases of Covid-19 within 25 miles of the premises. Instead, all you would need to evidence is that there was at least one case of illness caused by Covid-19 within the specified radius. In the current pandemic, this threshold will be easily overcome in most cases.

Usually, it is necessary to show a causal link between the disease and the losses which you have suffered. The insurers argued that there was no causation because, even if there had not been a case of Covid-19 within the specified radius, the losses sustained would have been suffered anyway, because the primary cause of those losses was the restrictions imposed by the government as a result of the other cases of Covid-19 elsewhere in the country.

However, the Supreme Court rejected this argument and decided that the question to be asked is whether the insured risk caused the business interruption losses within the meaning of the causal requirements in the policy, holding that it was sufficient to prove that the interruption was a result of government action taken in response to cases of the coronavirus pandemic which included at least one case of Covid-19 within the geographical area specified by the clause.

Accordingly, you are likely to be able to recover under the disease clause in your policy if you can establish that there was at least one Covid-19 case within 25 miles of the premises. At the High Court in the FCA case, it was confirmed that the data which you can rely on to establish at least one case of Covid-19 within 25 miles of the premises includes publicly available NHS data, as well as data published by the Office for National Statistics or the government. Information about how to locate sources of data is available in the FCA’s draft guidance on the business interruption test case: https://www.fca.org.uk/publications/guidance-consultations/draft-guidance-business-interruption-insurance-test-case-proving-presence-coronavirus

The Supreme Court’s decision turns on sample policy wordings from eight insurers. Therefore, you may wish to seek legal advice to determine whether your insurance policy was considered in the test case and whether, under the policy as a whole, you are likely to be in a position to make a successful claim.

Of particular importance is to check the notification requirements in the policy to ensure that you are not out of time for reporting a claim to insurers (if you have not done so already). The FCA has published various guidance and statements for policyholders which can be found on its website.

This article was first published in Estates Gazette on 10 February 2021 and written by Laura Bushaway at Charles Russell Speechlys LLP and David Nicholls at Landmark Chambers. For more information, please contact Laura or your usual Charles Russell Speechlys contact in our Real Estate Disputes team.