29th January 2021Business Interruption Insurance: what does the Supreme Court’s judgment mean for businesses?

The landmark Business Interruption Insurance court case came to an end this month as the Supreme Court ruled in favour of small businesses forced to close their doors nearly a year ago due to the pandemic. Here we share our guidance on what to do if your business has been affected by Covid-19 and are hoping to make a claim.

What does the judgment mean for insured businesses?

Following this month’s decision by the Supreme Court, there is now an expectation that claims affected by the case will now be settled quickly.

Businesses who have suffered losses as a result of the Covid-19 pandemic, particularly those in the retail, hospitality and manufacturing sectors, should undertake a review of their insurance policies quickly to determine whether they are eligible to recover under the terms.

Businesses who have previously had an affected claim rejected by their insurer, should now be considering requesting their claim be reconsidered.

How does a business prove loss of earnings?

If the claim is accepted, it’s likely that a loss adjuster working on behalf of the insurer will consider the claim. It is also possible that there are simply too many claims for a loss adjustor to handle. Therefore, it may be that a process will need to be set up by the FCA or a similar government body where the majority of claims are processed by simply comparing profits during a comparable unaffected period. If the loss is obviously exceeding the insured amount, then this will likely be a more straightforward process.

Generally, however, a loss of profit claim can be much more complex, as it will be required to be tailored to an individual Business (rather than the loss of an asset that is comparatively easy to value, such as a car):

  • This business might be seasonal
  • The business might be growing, or in the process of opening a new outlet, for example
  • The business may have taken steps to mitigate their loss (such as a restaurant taking on Deliveroo) – and the extent to which the additional income earned from these steps covered their losses.

In the most extreme example, the business may go under, and therefore a complex case arises of estimating the value of the business lost ‘but for’ the pandemic.

In certain circumstances we might find that where losses are complex, the claim will be passed on to a forensic accountant by the insurance company, or otherwise engaged by the business to challenge the findings of the insurance company.

How can I make a successful claim?

There is no right answer to this and all cases will be taken on an individual basis. However, to ensure a smooth process we would recommend spending time on your records. Accurate records are important and show how you have taken any reasonable steps to mitigate loss (for example, recovering staff costs from government scheme).

It is also important to retain records and communication where action has been taken as a result of the pandemic. For example, if you have attempted to renegotiate rent, this evidence should be kept.

If you have any questions about loss of earnings or making a potential claim, we would encourage you to get in touch with a forensic accountant. Please feel free to get in touch to discuss with the team here.

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