Business Interruption Insurance – FCA Covid Test Case Update
17 Sep 2020
It is well known that numerous businesses made claims on their insurance policies for business interruption as a result of Covid-19 and the restrictions placed on businesses arising from that, that insurers contested such claims and that the Financial Conduct Authority (“the FCA”) brought a test case to court. The aim of the case was to clarify the legal position on common issues.
Judgment in the case (of 150 pages) has now been handed down by the High Court.
It has been presented by some media sources as a victory for policy holders. We are of the view it is helpful and provides clarification on some headline issues, but that further work and consideration is required.
The Court was presented with sample wording from eight insurers and addressed on a number of points.
The legal position of clients will depend on the exact wording of the policy and the arguments put forward by insurers in response to their claim. The judgment will need to be considered in detail alongside that.
Some very general points arising from the judgment that we can make at this stage are:-
- Where the policy wording covered interruption following or as a result of any notifiable disease within a set radius or vicinity of the insured’s premises (the disease wording) this was interpreted in policyholders’ favour and that in very general terms, the disease was the cause of the government actions and loss and it was not limited to geographical area.
- Where the policy wording covered lack of access to premises due to actions or advice of government or other authority, due to an emergency likely to endanger life or neighbouring property, the wording was to be interpreted more restrictively than 1. above.
- Where there is a hybrid of 1 and 2 above the interpretation was to be more generous to policyholders along the lines of the disease wording.
- Clauses that in effect stripped out the government restrictions from the consequences of Covid-19 and thus reduced claims were looked on critically by the Court.
- Insurers’ arguments that Covid-19 and government restrictions were competing causes and should reduce claims were also dismissed.
- The insurers made concessions that the types of evidence put forward by the FCA, such as national statistics and specific evidence, were in principle capable of showing Covid-19 was present and that certain analyses could in principle meet what insureds have to prove to establish a claim.
The judgment and individual policy wording and circumstances will need to be considered in detail.
The insurers and FCA are reflecting on the decision.
Our understanding is that the insurers may appeal.
Insurers are supposed to write to affected policyholders within 7 days. In our view that would be the first step for policyholders to decide what to do next.
We are advising clients on such claims and are discussing their cases in light of the judgment. If you believe that either of the scenarios set out above (disease or lack of access or other) apply to you, we would be happy to assist. Please contact Jeremy Lederman to discuss further.
The above is very brief guidance and not to be relied on without specific advice.