The test case brought by the Financial Conduct Authority (“FCA”) in the English High Court in July 2020 hoped to provide clarity to both insurers and insured in relation to the interpretation of non-damage business interruption (“BI”) policies and their application to claims. Lord Justice Flaux and Mr Justice Butcher handed down their judgement in this test case on 15 September 2020. According to the FCA, they found, in the majority of scenarios, in its favour.
Whilst most general BI policies are unlikely to pay out at all for interruptions related to COVID-19 as there needs to be damage to property (typical fire or flood BI insurance) for the policy to be triggered, the judgement found that, in principle, most of the notifiable disease clauses provided cover and some of the ‘denial of access’ clauses did too.
The FCA estimates that some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by this case. The Association of British Insurers has estimated claims related to COVID-19 to be in the region of £1.7billion.
The judgement in the FCA test case, which may well be appealed by the insurers on an expedited basis straight to the Supreme Court, while resolving many key issues of contractual uncertainty and causation did not determine the quantification of BI claims.
Forensic accountants are often involved in quantifying consequential losses where matters are not straightforward. In our experience, it is useful when quantifying losses to have information such as:
- Contemporaneous notes of work turned down and/ or cancelled. For example, email correspondence and notes of calls from potential or existing customers;
- Details of delays in the completion of work due to supplier delays or due to the disruption of staff having to work from home;
- If your business relies on customers walking through the door then an analysis of footfall and average customer spend;
- Details of extra costs incurred from having staff work from home (if indeed, they are able to work from home);
- Details of any costs saved by closing or reducing staff onsite at offices/ shops/factories;
- Details of alternative work undertaken during the lockdown period (for example, were you able to flex your business model and provide alternative services such as a restaurant switching to take away/ delivery service); and
- Details of any financial assistance received from the UK government.
Despite this judgement, it may not be clear for some time what losses, if any, will be covered by your BI insurance. However, in the meantime, if you have insurance and there is a chance that you may be covered it cannot do any harm to keep as much information as possible to assist your claim. If you do need assistance in quantifying your business’ losses as a result of the COVID-19 pandemic and UK government lockdown, please do get in touch with Christine Rolland or Peter Graham in our specialist forensic accounting team.
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