19 February, 2021
Businesses in the manufacturing sector, like many others, have been hit hard by the Covid-19 pandemic with the profound operational challenges that it has presented. The scale of the pandemic's impact, including factory closures and unprecedented disruption to supply chains, has knocked companies off balance and has demanded resilience.
A further blow was dealt when some businesses sought to rely on their business interruption (BI) insurance for some much-needed relief from this and were met with some insurers disputing liability.
It was therefore evident that further clarity was needed on this, and the FCA confirmed such when they commenced proceedings on behalf of BI insurance policyholders in June 2020.
The Supreme Court recently considered the test case and has now offered much-needed clarity by ruling substantially in favour of policyholders in their final judgment. The Supreme Court ruled that the 'vast majority' of BI insurance policyholders will have cover for losses incurred due to national Covid-19 measures. It also means that some pay-outs in respect of valid claims will be higher.
Essentially, the decision decisively removes many of the roadblocks to claims by policyholders and serves to remove some of the uncertainty surrounding the parameters and validity of claims brought under BI insurance policies.
The verdict has been welcomed by businesses, with the Federation of Small Businesses national chair Mike Cherry commenting that "For many, it has been a long and difficult road to get to this stage, so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year."
Although the ruling is certainly a glimmer of hope for many businesses during such an uncertain time, the Supreme Court's decision is relatively complex and each case will be subject to differing circumstances. The extent to which manufacturers may be able to rely on the decision will depend on the exact nature of the BI issues they have experienced and the nature of their BI policies. The Judgment has however broadened the circumstances in which losses may be recovered, for example if premises were only partially closed.
Businesses, including those in the manufacturing sector, should therefore undertake a review of their insurance policies to determine whether they are eligible to recover.
The FCA have also published guidance for policyholders on proving 'the presence of coronavirus' which is a condition in certain types of policy. This guidance can be found here: Draft guidance: Business interruption insurance test case - proving the presence of coronavirus (Covid-19) | FCA.
In terms of when payment can be expected in successful claims, the FCA have advised that they will be working with insurers to ensure that claims are paid quickly, with the CEO of the British Insurance Brokers' Association, Steve White, urging providers to "act swiftly to settle claims fairly".
The Association of British Insurers (ABI) director general Huw Evans has also stated that all valid claims will be settled as soon as possible, with the process having already begun in many cases.
Overall, the ABI predicts £900m of BI claims and a further £1.8bn of Covid-19 claims.
The judgment is a step in the right director for manufacturers and businesses alike, and offers much-needed clarity on the ability to claim under BI insurance policies. However, it is evident that moving forward the UK also needs a long-term answer that provides a solution to help businesses cope financially with any future pandemic.
For more information contact Michael Chambers in our Manufacturing & Engineering department via email or phone on 0333 207 0740. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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