There’s an often quoted piece of advice about never asking a question in court to which you don’t know the answer. The rationale given for this is to avoid the answer being not only a very unwelcome surprise but also something which fundamentally damages your arguments. That being the case, how to ask the question whether commercial insurance policies cover business interruption (BI) losses caused by restrictions due to COVID-19?
In very general terms, the insurance industry delivered an early answer to this question on its own terms, with the response from the industry to date being both succinct and commendably consistent: most commercial insurance policies do not cover these risks and were never intended to pay for pandemics, although very few businesses may have specialist policies that may, subject to their particular wordings, provide limited or specific coverage.
This narrative can be seen in official statements from ABI representatives in recent weeks and in several responses to formal Parliamentary Questions. For example, an answer from City Minister John Glen MP on 4 May noted that “most businesses have not purchased insurance that covers losses from COVID-19. Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers.”
His answer also referred to the FCA’s new strategy to fast-track a declaratory judgment from the courts on the coverage, if any, afforded by typical policy wordings. In the text of his announcement on 1 May, Chris Woolward, Interim CEO of the FCA, also adopted the prevailing industry narrative; just as he had done in recent ‘Dear CEO’ letters to insurers in connection with the BI debate. It is worth quoting that in full:
As stated in our Dear CEO letter of 15 April, our view is that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the coronavirus pandemic.
Some customers’ policies also cover for BI from other causes (for example in relation to infectious/notifiable diseases, non-damage denial of access and public authority closures/restrictions) and may in some cases provide cover. Whether there is cover for the business interruption related to the pandemic crisis will depend on a number of factors including the policy’s wording. The range of wordings and types of coverage are sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim.
Repetition of these messages across many fronts certainly serves to reinforce them and raise awareness of what is said not to be covered, but arguably has no legal weight. Something closer to a reliable answer to the question in the introduction is really only going to be delivered after forensic interpretation by a judge of the meaning of the words used in the particular policy or policies under consideration.
The industry has, as already noted, given an early answer in quite wide terms. The decision by the FCA to seek a judicial determination in quick time has to be welcomed but, as with all forms of litigation, there are associated risks and the outcome sought cannot be assured. The regulator has asked insurers to clarify their position by the end of this week and its aim is then to progress relevant cases as soon as possible in order to secure “a timely, transparent and authoritative judgment”, perhaps by the end of this year.
Even six months or more before such guidance might emerge, it is far from difficult to envisage that as only the first legal step in what could be a drawn out process to decide who ultimately carries the can for BI losses caused by COVID19 rather than it being anything like a definitive resolution.