Insurers ordered to pay COVID related business interruption claims to small businesses

The Supreme Court has today agreed that insurers must make payments to small businesses claiming for business interruptions caused by the first COVID lockdown. It is estimated 370,000 firms could benefit from the ruling providing much needed cash for businesses affected by the pandemic.

The Supreme Court has also indicated that the insurers should be paying settlements as quickly as possible.

Any businesses adversely affected by the lockdown in Spring 2020 should be reviewing their insurance policies or speaking to their brokers to identify whether they have a clause in their policy that explicitly relates to cover for business interruption caused by infectious or contagious disease if they have not already done so. This needs to be done as a matter of urgency so they can make their claim within the time limits set out within their policy. They will also need to pull together documentation to support their claim such as management and final accounts, sales and purchase invoices and bank statements to show income and expenditure. They will need to be able to demonstrate the impact the lockdown had on their business by reference to results from prior months and years. 

The Supreme Court ruled that cover may be available not just for businesses that were forced to close entirely, but also for businesses partially closed or that were otherwise adversely affected by the lockdown. For the many businesses forced to completely close it will be relatively easy to demonstrate the losses and these claims should be settled pretty quickly. The more complex cases will involve businesses which were not forced to close completely, had varying levels of trade over the lockdown or changed their business model, such as switching to online trading. For these businesses it will be necessary to consider the additional costs incurred and it will be more important to consider the volume of trading over the lockdown compared to the same period in prior years.

It will be up to insurers to determine the value of each claim on a case by case basis, based upon the guidance in the Supreme Court Judgement and further guidance currently being drafted by the FCA. This guidance is expected to be issued soon after 22 January 2021 and will include Q&As for policyholders to assist them in assessing whether their policy is encompassed by the recent ruling.

In order to do this, the insurers will require various documentation from each business, depending on their specific circumstances and wording in their policy clauses. As these requirements become clear, Armstrong Watson can assist businesses with formulating claims and interim accounts to demonstrate losses.