If yours is one of the many businesses closed down and/or trying to operate with one hand tied behind your back as a result of the lockdown, you will no doubt have checked all your business insurance policies for a “notifiable disease extension” (or the like) clause. If you are fortunate enough to have such cover and your claim for losses has been rejected by the insurers, you will be wondering whether the recent high-profile High Court decision in favour of a restaurant has come to your rescue.
We analyse that judgment with particular emphasis on the two things which you must prove for your claim to be valid, with some thoughts on the importance of the wording of your particular policy, and with a recommendation on complaining to the industry authority if you feel you have been treated unfairly.
“…it must be asked whether, but for the Covid-19 outbreak, the interruption or interference to the Applicant’s business would have occurred when the Lockdown Regulations were promulgated” (extract from the judgment below)
It’s no surprise that our media has been awash with reports on the recent High Court judgment around a restaurant’s business interruption cover claims.
The restaurant in question, like many other businesses of all types and sizes, has been suffering severe losses from being forced to close (and latterly trade under very limited conditions) during the lockdown. Its business interruption claim in terms of an “Infectious Diseases Extension” clause in its policy (which it had faithfully been renewing annually since 2007) was rejected by the insurers.
What caused your business losses? The two things you must prove…
Sued by the restaurant, the insurers raised a whole slew of defences to the claim, all of them ultimately rejected by the Court.
Of most interest to businesses holding this type of cover will be the central question of whether or not the wording of your particular policy, in particular any “notifiable disease extension” clause (which in this case was a no-premium, “free cover” extension) will cover you for losses sustained in the particular circumstances of this pandemic and the lockdown.
The clause in this particular case promised cover for ”interruption or interference with the business due to (e) notifiable disease occurring within a radius of 50 km of the premises…”.
The insurer argued that this covered only losses resulting from business interruption “where the interruption is due to the Notifiable disease and not losses as a result of other causes” and that in this case business was interrupted not by the Covid-19 outbreak but rather by the lockdown “which is not insured under the Policy.” It also argued that “there was no sufficient causal link between the Covid-19 outbreak and the [restaurant]’s eventual loss.” The restaurant, it said, could have taken out other policies to specifically cover it in these circumstances but it chose not to do so.
In a nutshell, the Court found that the restaurant had to show two things –
- “The Covid-19 as a Notifiable disease, caused or materially contributed to the “Lockdown Regulations” that gave rise to the Applicant’s claim (this is a factual enquiry). If it did not, then no legal liability can arise…”
- “If it did, then the second question becomes relevant, namely whether the conduct is linked to the harm sufficiently closely or directly for legal liability to ensue, or whether the harm is too remote from the conduct”.
Finding that the restaurant had indeed proved causation as above, the Court declared that it was covered for such of its losses as it “is able to calculate and quantify from time to time”.
So are you covered?
The insurers have said they are taking this matter on appeal to the Supreme Court of Appeal (the insurance industry as a whole of course faces substantial losses from these claims), but remember that your particular policy may anyway be worded so as to cover you. There are also media reports of similar claims being met by some insurers, and of interim relief being offered by others. As the Court in this case put it “each case must be decided upon its own facts and the law”.
Moreover the Financial Sector Conduct Authority (FSCA) says that “The National Lockdown cannot be used by any insurer as grounds to reject a claim” and that “policyholders are able to claim in instances where they can show that they have satisfied the requirements of their specific policy, whether it was before, during or after the national lockdown”. You can complain to the FSCA if you feel that you have been treated unfairly.