Legal action into Business Interruption

Financial Conduct Authority

On 1 May 2020, the FCA announced its intention to obtain a court declaration via a test case to resolve uncertainty over a number of non-damage Business Interruption (BI) policy wordings which insurers believe were not triggered by the pandemic. 

On 15 September 2020, the High Court published its judgment on the interpretation of the sample policy wordings considered.

Whilst NFU Mutual was not one of the Insurers involved in the case, we had identified one of our policy wordings (the endorsement “Hospitality Endorsement – Prevention of Access”) as potentially affected by the outcome.

Whilst the Court found that some of the wordings in the test case should provide financial assistance to policyholders, wordings similar to ours were found not to operate in this way.

We have now carefully considered the judgment and its effect upon the interpretation of the policy wording. As a result, we are unable to change the decision that we have previously made in respect of claims made against this policy wording.

The Court found that the pandemic and the nationwide restrictions that followed could not be considered to be an incident (which our policy requires to have happened for cover to operate). The Court decided that an incident should be given the same meaning as “an event”, i.e. something which happens at a particular time, at a particular place and in a particular way – the Court gave examples of a bomb scare, gas leak or traffic accident. The Court observed that the requirement for the incident to be within a one-mile radius of the insured premises confirms that the proper interpretation of “incident” is an incident which happens locally.

The outcome/result is that the judgment supports our decision that this provision in NFU Mutual policies does not respond in respect of Covid-19 losses.

Whilst we have reached this decision based on the outcome of the Court judgment, there may be appeals made by the parties in the case. We will contact affected customers if our conclusion may be affected by an appeal.

Read the full update from the FCA or to subscribe to email updates on the test case.

You can also find information on the test case on the Financial Ombudsman website.

NFU Mutual offers non-damage BI cover in three parts of our commercial policy wordings. We reviewed the relevant policy wordings issued to commercial customers and found that the disruption caused by COVID-19 is not covered under any of these. 

The three wordings are: 

  • There is an extension available for Human Diseases which some commercial customers may have as part of their policy. This provides cover if premises need to close, or their use is restricted, as a result of a list of diseases specified in the customer’s policy document. Coronavirus (or COVID-19) is not included on that list. The test case did not consider any policy wordings which include a specified list of diseases. In addition, the test case did consider policy wordings which require the disease to be at the policyholder’s premises; as our wording does.
  • Our commercial policies also include some limited cover for interruption caused by a Public Emergency, but this cover specifically excludes infectious or contagious diseases. 
  • Finally, some of our Select policies have an endorsement that covers Prevention of Access when an incident has occurred, in certain limited circumstances – this endorsement does not provide cover for the nationwide lockdown that has followed the outbreak of COVID-19.  

The judgment has now been fully reviewed and we can confirm that the findings do not trigger cover for our customers. The NFU Mutual ‘Prevention of Access’ wording does not cover the nationwide lockdown that followed the outbreak of COVID-19 and therefore NFU Mutual’s position is unchanged.  We have contacted customers directly, where they have claims which may have been impacted.

Whilst the Court found that some of the wordings in the test case should provide cover to policyholders, wordings similar to ours were found not to operate in this way.

The Court found that the pandemic and the nationwide restrictions that followed could not be considered to be an incident (which our policy requires to have happened for cover to operate).  The Court decided that an incident should be given the same meaning as “an event”, i.e. something which happens at a particular time, at a particular place and in a particular way – the Court gave examples of a bomb scare, gas leak or traffic accident. The Court observed that the requirement for the incident to be within a one-mile radius of the insured premises confirms that the proper interpretation of “incident” is an incident which happens locally.

The Court decided that an incident should be given the same meaning as “an event”, i.e. something which happens at a particular time, at a particular place and in a particular way – the Court gave examples of a bomb scare, gas leak or traffic accident. The Court observed that the requirement for the incident to be within a one-mile radius of the insured premises confirms that the proper interpretation of “incident” is an incident which happens locally.

NFU Mutual will continue to review the development of the pandemic, how lockdowns are triggered and managed, and whether any of these occur in a manner which might meet the Court’s definition.

Any parties who formed part of the test case proceedings (we were not involved) can request permission to appeal. If our decision could be impacted by the outcome of any appeal, we will contact potentially affected customers to confirm this, along with the next steps.

We understand that this outcome will be disappointing for impacted customers during a period that has been extremely difficult, and some customers may wish to contest this conclusion. If you make a complaint (or have already made one) then you may be able to ask the Financial Ombudsman Service (FOS) to consider the matter further. You will be given details about this at the conclusion of our complaint process.