2020 created exceptional uncertainty amongst business owners who were impacted by the Covid-19 crisis. We are only a matter of weeks into 2021, and the Supreme Court has handed down its decision relating to the coverage of business interruption insurance claims made following the Covid-19 pandemic.
Last year, the Financial Conduct Authority brought a case to the Courts to seek clarification on whether the wording of common business interruption insurance policies protected the policy holder against the outbreak of Covid-19 in the UK.
The Supreme Court has now decided that where businesses were forced to close due to the impact of Covid-19, those businesses should be covered by their insurers and entitled to compensation.
“I am a business owner and I have insurance, will I be automatically entitled to compensation?”
Whether a business owner is entitled to any form of compensation is very much dependant on the wording of individual policies. Businesses should consider their business interruption policy wording in light of the Supreme Court’s decision.
“I am a tenant in a commercial property, what does this mean for me?”
Many tenants have already reached compromises or agreements with their landlords in relation to the payment (or not) of rent during the various lockdowns entered into over the past months. However, if no agreement has been reached, a tenant may choose to pay any rent arrears with any insurance monies received (if applicable under the wording of the individual policy). This is good news for landlords too. Payments to tenants should help prevent insolvency and a reduction in the number of void commercial units.
“I am a landlord and I have already reached a rental agreement with my tenant. Can I retract this in light of the Court’s decision?”
The simple answer is, no. If, as a landlord, you have already entered into a rent concession with your tenant, you will still be bound by this even if the tenant subsequently recovers under a business interruption policy.
However, always check the wording of the rent concession agreement. If there is a specific right to clawback rent in the circumstances that the tenant can recover through insurance, you may be able to terminate the rent concession.
“Will the Supreme Court’s decision impact on lease negotiations going forward?”
Yes, it is possible that some type of “pandemic insurance” may become available. The insurance provisions within a lease may extend to pandemic insurance and a landlord may require their tenants to put such insurance in place. Alternatively, landlords may choose to put such cover in place and seek to recover the costs from the tenant in a similar way as to how buildings insurance is recovered in commercial leases.
The ever-changing terminology and principles established in legislation and the courts will almost certainly impact on the drafting of Covid-19 and wider pandemic clauses in leases going forward.