Brief overview: business interruption insurance

A recent test case in the High Court of the Business and Property Courts of England & Wales has given food for thought not only for an international context, but also for New Zealand. The decision carries importance because it discusses the applicability of business interruption insurance policies in a COVID-19 context.

The test case The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm) was decided in favour of the Financial Conduct Authority (FCA). Generally, it found for the FCA in respect of coverage triggers across several policies including clauses dealing with “denial of access”, “disease”, “hybrid”, and “public authority”.[1]

The Court also, expectedly, commented on entitlement of policyholders. The ruling was that most businesses that had business interruption policies, and had to close because of COVID-19, were entitled to compensation, subject to policy limits.[2] The extent of the compensation was to put the businesses in the position they would have been in had COVID-19 not occurred.[3] In other words, a return to the status quo and, generally, the position pre-COVID-19.

This test case has garnered attention within insurance circles.

Closer to home, the Insurance Council of Australia (ICA) have initiated a test case to determine the applicability of specific infectious diseases exclusions in businesses interruption insurance policies.

This is a development to follow closely.

In New Zealand, a number of organisations with business interruption insurance were unable to claim in the context of the lockdowns. This was because policies, generally, only offered coverage for physical damage to property. Businesses in New Zealand with policy wording that covers public authority restrictions on entering premises may take inspiration from the UK test case and the upcoming test case in Australia. This is a potential occurrence space to watch out for.

With COVID-19 continuing to affect businesses to varying degrees, some business owners will have thought about potentially claiming insurance. The UK test case and the upcoming test case in Australia display a certainty and clarity-seeking intention by relatively significant stakeholders in the insurance industry. In similar vein, it would be unsurprising to see developments in this respect within New Zealand. If such developments fructify, one would be paying very close attention.

Copyright Steve Keall, all rights reserved, 2020

[1] The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm) at [414], [531], and [532].

[2] At [386] and [475].

[3] At [351], [386], and [475].

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