Business Interruption Claims – Update

The much-anticipated judgment in the Financial Conduct Authority (FCA) test case on business interruption insurance has been handed down by the High Court today. I addressed some of the key issues that the Court was being asked to determine in my previous blog post in July this year.

Today’s High Court judgment is extensive, running to some 150 pages. The FCA has provided links to the following information for ease of reference for policyholders and their advisors:

• The full judgment – https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-judgment.pdf
• The FCA press release – https://www.fca.org.uk/news/press-releases/result-fca-business-interruption-test-case

Further commentary is expected to be produced by the FCA’s legal advisors and the defendant insurers in the coming days.

The Key Points

It is beyond the scope of this blog post to address each and every point addressed in the judgment as a wide range of issues in respect of each of the defendant insurers’ policy wordings has been assessed by the Court. As a result, policyholders and their advisors will need to address the Court’s specific guidance regarding the different forms of policy wording. The Court’s commentary is wide in its scope. However, as the FCA itself has stated ‘The Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues’.

Some of the key take home points are as follows:

• Typical Business Interruption insurance policies covering just property damage. As expected, the judgment offers no comfort to those policyholders whose policies were ‘standard’ and only covered business interruption arising from property damage (such as damage that arises from fire or flood). There will inevitably be a large number of businesses who had hoped to benefit from cover under business interruption policies but have subsequently found that their insurance policy wordings do not contain terms which require their insurers to cover claims arising from Covid-19. There is expected to be claims that might arise against insurance brokers for a failure to properly advise businesses over the terms of their business interruption insurance.
• The Court’s judgment affirmed that it was only assessing policies which included ‘non-standard’ extensions beyond the standard policies. As stated above, each business interruption policy and the specific wording of the relevant terms will need to be assessed in line with the guidance handed down by the Court in the judgment, but some of the key issues addressed in the judgment were:
• Disease clauses (i.e. those covering claims arising from the occurrence of a notifiable disease within a specified geographical area of the specified premises of a policyholder).

A substantial degree of cover under disease clauses has been affirmed by the Court’s judgment. In assessing what amounts to an ‘occurrence’ of Covid-19, the important factor to take into account was that there had been incidents of infection and not formal diagnoses. This should make it easier for policyholders to demonstrate an occurrence of Covid-19 within a specified geographical area relevant to the business, relying on NHS data, ONS data or (where necessary) expert analysis. The defendant insurers have not indicated that a policyholder will need to produce to its insurers precise Covid-19 disease figures as part of a notification against its policy (or that claims will fail as a result).

The Court also found that both the Covid-19 disease itself and the Government’s response to the disease amounted to one single cause of loss where a claim is made under a policy. However, the importance of dealing with each policy on its individual merits was underlined by the Court’s judgment that there will be policies (with the insurer QBE given as an example) where the nature of the specific wording used in the policy terms mean that cover would only be afforded where localised events directly impacting on the policyholder’s business occur (e.g. the recent spate of local lockdowns). In those instances, it may not be sufficient for a policyholder to base a business interruption claim solely upon steps that are being enforced nationwide.

• Prevention of access clauses / ‘public authority’ clauses (i.e. those providing cover where a policyholder’s ability to use their specific premises is prevented due to actions / restrictions of the government / a public authority) and Hybrid wordings (i.e. clauses in policies where notifiable disease resulted in restrictions being imposed on a policyholder’s premises).

The Court’s guidance is that cover may be triggered by a prevention of access clause, but that claims of this nature will be construed more restrictively. There are a number of key factors which would need to be assessed in respect of a claim against a policy. One particular area that would need to be assessed is the nature of the restriction of access i.e. whether a business was mandated to close or whether it was impacted by the Government’s ‘Stay At Home’ requirements.

• Calculation of Losses

The judgment largely reflects that (unless the policy wording was specific on the issue) the calculation of loss (i.e. the amount the policyholder can recover from the insurer) should be the amount to put a policyholder in the position it would have been in had the incident resulting in the claim not occurred (in this instance the Covid-19 pandemic). The Court also provided helpful guidance on the judgment in Orient Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm), which was relied upon by insurers with regard to causation arguments, but which the Court assessed as (i) relating to matters which do not relate directly to the FCA test case; and (ii) was problematic in its nature as it may have misidentified certain key issues.

Practical Steps

It is possible that this judgment may be appealed and the FCA and insurers have agreed that they will seek to have any appeal heard on an expedited basis and also seeking to potentially ‘leapfrog’ any appeal to the Supreme Court (as opposed to the standard position of an appeal being heard first by the Court of Appeal).

With previous estimates of 370,000 different policyholders that might be affected by this judgment, it remains essential that businesses take steps to determine whether they have business interruption insurance and ensure that claims against the insurance are identified and notified urgently.

• Policyholders that have already notified a business interruption claim with an insurer who are a defendant in the FCA test case should expect to hear from their insurers within the next 7 days as to how their claim has been impacted by this judgment.
• Those that have business interruption insurance should look at their policy initially to see whether it appears to cover claims where there has been a notifiable disease and the prevention of access to premises (or terms that appear similar or are hybrid in nature). If businesses require assistance with assessing their policies, IBB Law would be happy to assist. Alternatively, a policyholder’s insurance broker may be able to assist.
• If you have business interruption cover and you believe that you may have a claim for losses suffered by your business, you should notify your claim to your insurers urgently and without delay – some policies may contain time-sensitive provisions with regard to notification which might result in an otherwise valid claim being declined.

Chris Thompson of IBB Law has acted for policyholders and insurers (including Lloyds’ of London Syndicates) advising on the interpretation of insurance policy wordings and is able to assist and advise businesses of all sizes with regard to business interruption claims or other insurance policy issues.