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Will Business Interruption insurance cover loss of commercial rent during the COVID-19 outbreak?
The disruption caused by COVID-19 outbreak and subsequent lockdown has left commercial landlords and their tenants in a very difficult position. In the case of the latter, the lack of income due to significantly reduced economic activity has left many unable to pay their rent.
So, what recourse do commercial landlords have to make up the shortfall in rental income? A huge proportion have made claims under their Business Interruption insurance policies but, as we highlighted in our recent blog, it’s not yet clear whether such policies cover the current situation.
Ordinarily, BI policies pay out when business premises suffer physical damage. However, some extensions may be included which might encompass rent loss brought about by the pandemic. The most likely to apply is ‘notifiable disease’ cover which relates to a notifiable disease discovered at an insured premises or occurring in the vicinity. COVID-19 appears to fall into this category. ‘Loss of access’ cover extensions which concern actions relating a danger or disturbance that prevent or hinder access to the premises could also potentially be relevant.
The Financial Conduct Authority (FCA) is in the process of bringing an urgent test case to Court seeking clarification over disputed interpretations of policy wordings and although it doesn’t specifically address loss of rent claims, it may help to establish whether these policy extensions apply. The hearing on this matter is due towards the end of July with a ruling expected shortly after.
If you are a commercial landlord and currently facing this predicament, it’s worth checking your BI policy to determine whether it potentially provides cover and whether wording included mirrors any of those being addressed in the FCA test case. If so, then the next step would be to contact your insurance brokers.
The FCA’s high profile test Court case has now opened.
The FCA has submitted that many small businesses that took up insurance policies to protect themselves against closure caused by an outbreak of infectious disease could not be expected to understand complex legal principles being put forward insurers to reject their claims. In response, eight insurers who are acting as defendants have rejected this premise, arguing that several businesses concerned would have received professional advice from brokers before signing up to policies. The Insurers maintain that the FCA’s test case would leave them liable for losses they never agreed to cover.
We will continue to monitor proceedings and provide updates as they develop.