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Has COVID-19 interrupted your business?

Published: 14 January 2021

Government advice and new mandatory legislation passed to combat the spread of COVID-19 (the “Virus”) has caused significant and ongoing disruption to many businesses. Those with Business Interruption (“BI”) insurance may be able to claim for related financial losses however, interpreting BI clauses in the unprecedented context of the Virus has not proved to be a simple task.

To clarify the issue in the UK, the Financial Conduct Authority (the “FCA”), brought an expedited test case against 8 insurers, FCA v Arch Insurance (UK) Ltd and Others [2020] EWHC 2448 (the “Test Case”). Although the High Court considered the wording of just 21 policies from 8 insurers, the FCA estimated that 700 types of policies, over 60 different insurers, and 370,000 policyholders could potentially be affected by the Test Case.

The Test Case judgment (the “Judgment”) spans 160 pages and is complex and nuanced however broadly speaking, the construction of three specific clauses were examined in detail, namely:

  • Disease Clauses – triggered by the occurrence of the Virus, typically with a specified distance of the insured’s premises;
  • Prevention Clauses – triggered by public authority intervention preventing access to premises because of the Virus; and
  • Hybrid Clauses – a combination of Disease and Prevention Clauses.

The practical impact of the Judgment in the UK remains to be seen as the High Court subsequently granted ‘leapfrog’ certificates, enabling certain parties to appeal directly to the Supreme Court. The appeal was heard last month and at the time of writing we await the outcome; however, the Judgment is still useful as it clarifies issues parties should have regard to when assessing BI coverage in the context of the Virus.

Disease Clauses

To trigger coverage under Disease Clauses, insurers argued that BI must be caused by an occurrence of the Virus within a specified distance (i.e. 25 miles) of the business premises, rather than the national occurrence of the Virus. The FCA disagreed and submitted that a local outbreak of the Virus is indivisible (unable to be separated) from the national outbreak, and therefore BI coverage should be triggered as the Virus was/is prevalent nationwide. The High Court agreed with the FCA and interpreted Disease Clauses broadly, finding that the UK national lockdown in March 2020 was enough to trigger cover under these clauses in the UK. Of course, in Jersey, given the size of the Island, different considerations will apply when defining ‘localised’ and ‘national’ cover.

Prevention Clauses

The Judgment held that BI coverage under Prevention Clauses is likely to be triggered when local authorities implement measures (as opposed to national measures) that result in a complete closure of businesses. The Judgment distinguished between prevention and hindrance of access and scrutinised policy wordings to establish whether coverage is triggered as a result of public authority advice, or legislation. The availability of BI coverage under Prevention Clauses in the UK is therefore closely linked to the specific policy wordings and the facts of the case. In Jersey, due to a recent spike in cases of the Virus, some of the guidance is now enshrined by law. That guidance applies to Jersey as a whole however, those seeking to establish coverage under these clauses in Jersey will still need to analyse policy wordings on a case by case basis.

Hybrid Clauses

These are typically a blend of Disease and Prevention Clauses. In short, in the Judgment, Disease Clauses were interpreted broadly, triggered by the national outbreak of the Virus, and the Prevention Clauses narrowly, with reference to the policy wording, measures restricting access to premises and existing business operations.

Practical Impact on Jersey

The FCA brought the Test Case on behalf of many small to medium size businesses that ordinarily would not have the resources to be party to such litigation with large defendant insurers. Policyholders in Jersey seeking to recover financial losses caused by the Virus are likely to have similar BI insurance to those businesses represented by the FCA in the UK. Accordingly, although Jersey law has some previous general authority on such clauses, it is likely that the Jersey Court will examine the Judgment carefully and consider whether the new principles stated therein can be applied in Jersey in these unprecedented times.

If you believe your business may have a claim under BI insurance, we recommend that you take steps to preserve your business’ position and contact your insurer. If you cannot reach an amicable solution with your insurer, we recommend that you contact a specialist lawyer in this area. At Viberts, we have a specialist litigation team who can guide you through this process, we also offer a range of fee structures to suit our client’s individual financial circumstances.

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