Business interruption insurance
Business interruption insurance (BII) covers loss of income suffered by a business because it has had to close or restrict its activities due to certain events.
What is Business interruption insurance?
Business interruption insurance (BII) covers loss of income suffered by a business because it has had to close or restrict its activities due to certain events.
The Covid-19 pandemic has caused many businesses’ activities to be interrupted and income to be lost. Some of these businesses had business interruption insurance (BII) policies and have made claims to their insurer. However, policies vary significantly and while some businesses have been covered in the circumstances of their claim, others haven’t.
Types of complaint we see
We have seen complaints relating to how insurers (and brokers) have handled business interruption insurance claims in the context of Covid-19 from companies, sole traders, partnerships and charities. In most cases, complaints have come to us because they’re unhappy that the insurer has turned down their claim. In a few cases, complaints have been about how their insurance was sold, a delay in considering the claim or the amount offered by the insurer in settlement.
Insurers have turned down business interruption insurance claims for many different reasons, including:
- There was no business interruption term in the policy
- The policy only provided cover where the interruption was caused by a disease on a list of specified diseases – and this didn’t include Covid-19
- The policy only provided cover where the interruption was caused by a case of Covid-19 at the premises and there was insufficient evidence to demonstrate that was the case
What we look at
When we consider a complaint, we want to determine what is fair and reasonable in all the circumstances of the individual complaint. There are many different types of BII policy, each of which has different relevant terms, and the circumstances of each complaint are different.
To help us consider a complaint fairly, we’ll ask you to provide some information. We’ll make our decision about what happened using evidence provided by you, the financial business and any relevant third parties.
We take into account all applicable regulations, rules, law and guidance. This includes the Supreme Court’s judgment that was issued following the test case taken by the industry regulator, the Financial Conduct Authority (FCA). Other court cases have also informed our approach, and FCA guidance.
Complaints where business interruption was caused by a case of Covid-19 at the premises
Many BII policies provide cover where there is a case of disease at the insured premises.
Policies vary significantly in their terms but, typically, in the context of the Covid-19 pandemic the policy requires the interruption to have been caused by the occurrence or a manifestation of Covid-19 at the premises.
How to complain
If you have made a claim and are unhappy with what your insurer or broker has told you, let them know. They then have up to eight weeks to issue a final response. If you’re still unhappy with what they say, then contact us.
Making a claim
To determine whether you can make a claim under your business interruption insurance, check your policy terms to see what cover is provided. If you arranged the policy through a broker, you may want to check with them too.
The FCA has published a policy checker on its website. This provides a general guide to find out if your policy might cover business interruption losses caused by Covid-19.
If you think your policy could provide cover, or if you are unsure, contact your insurer. Keep records of what’s happened and gather evidence of any losses.
Making a complaint
Bringing a complaint to us is straightforward and won’t cost you anything. We’ll check your complaint is something we can deal with, and if it is, we’ll investigate. We’ll look at your policy and the circumstances of your claim fairly and impartially before telling you and the business what we think.
Find out more about our process and how to send us a complaint.
Putting things right
If we decide that your insurer or broker has made a mistake or treated you unfairly and you’ve lost out as a result, we have the power to put things right. Usually, we’ll tell the financial business to put you back in the position you would have been in had things not gone wrong. We might also decide the business should pay you interest on top. If applying interest, we expect the business to calculate the number of days you didn’t have the money you should have had, and apply a suitable rate of interest (typically 8% simple) to the amount they refund.
Find out more about our approach to calculating compensation.
Case studies
Here is a selection of case studies that illustrate the range of ways we investigate and resolve BII complaints.
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What happened
A small business, a repair shop, contacted us. It said Government regulations had meant it had to close in March 2020 and that it remained closed throughout the period of lockdown.
The small business had a BII policy which provided cover where the interruption to business was caused by an occurrence of a notifiable disease on the premises. The insurer recognised that Covid-19 was a notifiable disease but did not accept that the business had been forced to close by an occurrence of the disease on the premises. Although one of the small business' staff members did feel unwell in March 2020, prior to the Government restrictions coming into force, it had no further evidence to offer of there being a case of Covid-19 on the premises.
What we said
We reviewed the small business' policy and agreed with the insurer that, in order for the policy to provide cover in the circumstances of this claim, there would need to have been a case of Covid-19 on the premises. We invited the small business to consider again whether it had any evidence to indicate this, but it didn’t.
Therefore, on the balance of probabilities, we concluded that it was unlikely there would have been a case of Covid-19 on the premises and told the small business that, in the circumstances of its claim, its insurer had fairly applied its policy to decline its claim.
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What happened
A small business, a nail salon owner, contacted us and said her business had been forced to close by the Government restrictions but that her insurer had turned her claim down. She felt that a term in her policy provided cover in the context of closure by a suitable authority because of the occurrence of a specified illness.
Her insurer said it recognised that the business had been interrupted by the Government’s actions but that Covid-19 wasn’t one of the illnesses specified in the policy and therefore cover wasn’t provided.
What we said
We reviewed the policy and looked carefully at the conditions. Although the policy did provide cover where the business is interrupted because of the occurrence of certain listed illnesses and diseases, Covid-19 wasn’t on this list.
We considered whether it was fair to decline cover in this case given that Covid-19 didn’t exist at the time the policy was written but we found that to extend cover in this way would be unreasonable as the policy had deliberately limited cover to a set of known illnesses and diseases.
We therefore said the insurer had fairly applied the term in the policy and declined the claim.
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What happened
A small business, a restaurant, contacted us to say that it had been forced to close by the Government’s restrictions in response to the pandemic. The business had made a claim under its BII policy but it had been turned down by its insurer because the policy required it to demonstrate that the closure was in response to an occurrence of a notifiable disease within 25 miles of its premises.
The insurer accepted that Covid-19 was a notifiable disease but didn’t accept that the restaurant’s closure had been caused by an occurrence of Covid-19 within this radius.
What we said
Recognising that there was potential for significant uncertainty around the interpretation of certain BII policies in the context of the Covid-19 pandemic and the Government’s related actions, the FCA pursued a test case through the courts. We recognised that this case could provide some clarity on policies which required an occurrence of Covid-19 within a specified distance of the business premises (so-called radius policies), and therefore paused our decision on such complaints while the test case proceeded.
When the Supreme Court judgment was delivered in January 2021, it was clear that such policies might provide cover. Therefore, we liaised with the restaurant’s insurer and it agreed to reconsider the claim. We thought this the right outcome.
If the restaurant was still unhappy once the insurer had reconsidered the claim, it could come back to us again.
Example decisions
Our ombudsmen have already issued decisions in complaints brought to us about BII in the context of the Covid-19 pandemic. Here are a selection of final decisions provided as indicative examples of current thinking in the situations listed. However, individual cases are decided on their own facts and based on what we think is fair and reasonable, accounting for the unique circumstances of each case we receive. We anonymise our decisions and write them in a way that prevents the person or small business complaining from being identified.
- A case about a policy where cover turned on the presence of a disease from a specified list being found at the premises
- A case about a policy where cover turned on the evidence for Covid-19 being present at the premises
- A case about a policy where cover turned, among other things, on there being an emergency event in the vicinity which caused a prevention of access to the premises but excluding action to prevent the spread of a disease
You can search all final decisions issued by our ombudsmen on our database of decisions.
Other useful resources
- Take a look at how to contact us
- You can search our published ombudsman decisions online on our main website.
- The FCA provides useful information on business interruption insurance, including the outcome of its ‘test case’.
- The FCA has also published a policy checker on its website that provides a general guide to find out if your policy might cover business interruption losses caused by Covid-19.
- The government has also provided guidance in relation to commercial insurance policies.
- You may also want to refer to information from the Association of British Insurers.
