So, why have insurers been in the news recently?
The effects of the COVID-19 pandemic on the vast majority of businesses across the UK have been nothing but devastating.
Business interruption insurance principally provides cover for the financial losses due to an interruption caused by a sudden and unforeseen material damage to insured property, from perils such as fire, storm, flood, accidental damage or malicious damage.
Whilst the majority of commercial policies require this material damage to occur prior to triggering Business Interruption cover, a limited number of policies will respond to other causes under non-damage extensions. However, it is widely regarded within the insurance sector that these policies were not genuinely written as a deliberate divergence from ‘standard’ cover to pick up pandemic losses. The insurers’ intent was to give localised breakout of known or named diseases e.g. legionnaires, E.coli and salmonella. These diseases have a traceable origin and can be brought under control relatively easily. Furthermore, policyholders can arguably control their risk, pre and post loss. It was easy to see how businesses such as licenced premises and those serving food could suffer from a non-damage loss if food became contaminated or a disease broke out within the premises or even in the localised area. Policy wordings and extensions were drawn up by insurers to cover this perceived risk. The issue for the FCA and ultimately the courts was the way some of these extensions were worded and this brought cover and the wording of these non-damage extensions into dispute.
Large number of Covid 19 related claims have been made for the Business Interruption arising from these non-damage extensions and whilst few insurers initially accepted liability, others immediately and persistently disputed the cover for a nationwide loss or pandemic was in place. The majority of insurers who provided these non-damage extensions said the intention of these was not to give cover for a pandemic which, through Government intervention and lockdown control, has caused most UK businesses to suffer an interruption to their business and a loss of income.
This has ultimately led to a widespread concern about the lack of clarity regarding those insurers’ policy wordings which provided non-damage extensions. The Financial Conduct Authority (FCA), under their principles which every regulated insurance company has to operate under, chose to look into this situation and take matters to the courts.