Today the High Court has today handed down its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case.
Many policyholders whose businesses were affected by the Covid-19 pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.
Most SME policies are focused on property damage and only have basic cover for business interruption (BI) as a consequence of property damage. But some policies also cover for BI from other causes, in particular ‘disease clauses’ and ‘denial of access clauses’). Many insurers have disputed liability leading to widespread concern about the lack of clarity and certainty.
Today, however, the High Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues.
The FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
James said, “Many businesses in North West Norfolk contacted about insurance companies not paying out on policies in response to Covid-19 I raised their concerns with the FCA and Treasury and I welcome this ruling.
in summary, the judgment says:
- most, but not all, of the disease clauses in the sample provide cover;
- certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely; and
- the Covid-19 pandemic and the Government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.
Although the judgment will bring welcome news for many policyholders, each policy needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next 7 days.
Background:
The FCA’s aim in bringing the test case was to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible. The FCA did this by selecting a representative sample of policy wordings issued by eight insurers. The FCA’s role was to put forward policyholders’ arguments to their best advantage in the public interest. 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.
The test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers. It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market.
It is important that policyholders, action groups, insurance intermediaries and their legal representatives are properly engaged throughout the test case process. The FCA has therefore arranged an opportunity for them to talk to its legal team individually on Monday 21 September or Tuesday 22 September - find out more.
