Many policyholders had their claims for business interruption rejected by insurers who argued that the policies weren’t designed to provide cover in a pandemic. Various action groups were set up when it became apparent that most insurers who provided business interruption insurance rejected claims from policyholders – in the main, small businesses.

The Financial Conduct Authority (FCA) became involved in an effort to resolve issues with the main focus being on the policy wording and whether this provided protection for the policyholder who were ordered to close or otherwise wouldn’t trade as a result of government imposed lockdowns.

Judges at the Supreme Court considered a range of sample policy wordings which addressed issues arising from the interpretation of clauses relative to the insured’s claim of business interruption. These included “disease clauses”, “prevention of access clauses”, “hybrid clauses” and “trends clauses”.

The Supreme Court handed down its judgement on 15 January 2021 and gave their interpretation of these clauses which, on the whole, determined that the insurers cannot reject claims simply because there is a pandemic. The interpretation of the wording of the various clauses was, essentially, that cover should be provided where the insured were unable to operate their businesses.

This will come as a huge relief to thousands of small businesses up and down the UK who were forced to close due to lockdown restrictions imposed by government as a result of the coronavirus pandemic.

It is clear there will be considerable financial impact on the insurance industry as a result of this decision.