On 15 September 2020 the High Court gave its judgment in the Financial Conduct Authority’s (FCA) business interruption insurance test case.
The Court found in favour of the FCA’s arguments advanced in behalf of on the majority of the key issues.
It is well established that the Covid-19 pandemic has caused businesses to suffer significant losses resulting in large numbers of claims under their business interruption (BI) policies.
Most SME policies focus on property damage and only have basic BI cover as a consequence of property damage. However, some BI policies cover other causes, such as:
· infectious or notifiable diseases (‘disease clauses’)
· non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).
Some insurers have accepted liability under these policies whilst others have disputed liability. This created much concern and the FCA brought this test case to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible.
The FCA selected a representative sample of policy wordings from eight insurers and put forward policyholders’ arguments to their best advantage. The FCA identified that 370,000 policyholders held policies which may be affected by the outcome of this test case.
What the judgment decides
The judgment is complex, lengthy and addresses many issues. The main points are as follows:
1. In order to establish liability the FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the sample of policy wordings provide cover in the Covid-19 pandemic and that the trigger for cover caused policyholders’ losses.
The judgment says that:
· Most but not all of the ‘disease’ clauses in the sample policies provide cover.
· Some of the ‘denial of access’ clauses in the sample policies provide cover. However, this depends on the detailed wording of the clause and how the business was affected by the Government’s response to the pandemic for example whether a business had a mandatory closure order and whether a business was ordered to close completely.
2. The test case clarified that the Covid-19 pandemic along with the Government and public response were a single cause of the covered loss. This is a critical requirement for payment of claims even if a policy provides cover.
The upshot of the judgment for policyholders
The judgment will be welcome for many policyholders but it did not state that the eight defendant insurers are liable in respect of the sample policies considered by the Court. A policy and the policyholder’s circumstances will need to be considered against this detailed judgment to establish what it means for that particular policy.
This blog was written by: Polly Hill
DISCLAIMER: Please note that this post sets out the general position under the general law. It should not be acted upon in any specific circumstances without taking specific legal advice as to those circumstances. Also, it should not be relied upon, acted upon or treated as a substitute for specific advice relevant to particular circumstances. If you do require specific advice please contact us for assistance.