FCA business interruption insurance case: The Supreme Court ruling.
FCA business interruption insurance case: The Supreme Court ruling.
Review your Business Interruption Insurance Policies! Today’s Supreme Court judgment gives businesses greater prospects of recovering the substantial losses that have arisen from the Covid-19 pandemic from their insurers. Those who have not already notified claims should move swiftly to check their policies. If you require assistance, IBB Law is on hand.
The FCA’s test case seeking clarity on how business interruption insurance policies should treat policyholders’ Covid-19 related claims has now concluded with the Supreme Court handing down judgment on 15 January 2021.
The FCA and a selection of insurers commenced a leapfrog appeal process following the first instance judgment in the High Court of 15 September 2020, seeking clarity from the Supreme Court on a number of issues – see my previous blog post on the High Court decision. The High Court decision largely favoured the FCA’s and policyholders’ interpretations of how business interruption policies should address valid claims. The insurers involved in the FCA test case have been:
- Arch Insurance (UK) Ltd
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- Hiscox Insurance Company Ltd
- MS Amlin Underwriting Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
- Zurich Insurance Plc
The Supreme Court Judgment
Today’s Supreme Court judgment is extensive, running to over 100 pages. The FCA has provided links to the following information for ease of reference for policyholders and their advisors:
Further commentary is available from the FCA’s legal advisors and it is anticipated that both the defendant insurers and the FCA may provide further guidance to policyholders in due course.
The Supreme Court judgment has again favoured the FCA and policyholders in both (i) allowing the FCA’s appeals (albeit with qualifications in respect of certain aspects) and (ii) dismissing the insurers’ appeals. This is certainly a positive result for those policyholders who have insurance in the same form as the sample wordings which the Supreme Court has addressed and who have valid claims against their policies – it is expected that those policies will now indemnify policyholders who have valid business interruption claims arising out of the Covid-19 pandemic.
In addition, policyholders who have business interruption insurance with other insurers whose policy wordings are sufficiently similar in form and wording to the sample wordings addressed by the Supreme Court will be able to rely upon the judgment as offering guidance on whether their policy should indemnify their claims.
The number and complexity of the issues that the Supreme Court addressed goes beyond a short summary but some important points to note are that:
- Notifiable Disease clauses
Certain policy clauses indemnify claims arising from the occurrence of a ‘Notifiable Disease’ within a specific radius of the policyholders’ premises (e.g. a radius of 25 miles). The Supreme Court judgment takes a slightly more narrow approach to the High Court in that it has interpreted these clauses as requiring a policyholder’s claim to arise from an occurrence of a Notifiable Disease within the radius described (and not anything outside of that area). However, the judgment equally addresses that the policies do not typically confine cover only to business interruption which was caused by the specific instance of the disease identified within the radius and also that a pandemic disease such as Covid-19 has the capacity to impact a wide area. As a result, claims arising out of the wider impact of the disease (and not just the local radius) should be covered by insurers.
- Prevention of Access clauses and Hybrid wordings
Another issue addressed by the Supreme Court was where a business interruption policy covers claims for a policyholder’s loss arising from them being prevented from using or accessing their premises as a result of some restriction or intervention by a public authority. The Supreme Court judgment on this issue is in fact more favourable to policyholders in that it indicates that a ‘restriction’ for the terms of the policy will not necessarily require the force of law for it to satisfy the requirements of the policies. The Supreme Court judgment references the various instructions issued by the Prime Minister in March 2020 that businesses must close as satisfying the criteria of an imposed restriction. Further, the judgment indicates that where a business is required to only close part of its business or loses access to only part of its premises, it may still have a valid claim.
The judgment also addresses further issues relating to causation (where there may be competing causes of the loss claimed) and trends clauses (where the level of indemnity takes into account a downturn trend in a business before the event resulting in the claim under the policy was triggered). The Supreme Court judgment again largely favours the FCA’s and policyholder’s interpretations and held that the prior case of Orient-Express Hotels Ltd v Assicurazioni General SpA [2010] EWHC 1186 (Comm); [2010] Lloyd’s Rep IR 531 had been incorrectly decided.
Practical Steps
With widely reported estimates indicating that there may be over 370,000 different policyholders that are affected by the FCA test case, it remains essential that businesses take steps to determine whether they have business interruption insurance and secondly, ensure that claims against their insurance are identified and notified urgently to their insurers. Some policies may contain time-sensitive provisions relating to notification which might result in an otherwise valid claim being declined by insurers. It is therefore preferable for a policyholder to notify claims to their insurers on an early and precautionary basis.
In the first instance, policyholders should keep in mind the following:
- Policyholders that are considering settlement offers from insurers relating to business interruption claims may wish to consider whether their claims should be revised following the Supreme Court decision. We are able to review and advise on this issue. Alternatively policyholders should speak with their insurance brokers.
- Policyholders who have notified valid claims against one of the insurers who are parties to the FCA’s test case should now hope to have these claims resolved with their insurers. It is expected that the insurers will seek to do so swiftly. If a policyholder is faced with its insurer disputing a valid claim, we are able to review and advise you on the validity of your claim and the prospects of successfully challenging the insurers’ decision. We would seek to advise you on a review of the relevant insurance policy documentation and other key documents relating to the claim and its notification.
- If policyholders have business interruption cover with insurers other than those who were parties to the FCA test case and believe that they may have a claim for losses suffered by their business, we are again able to review and advise you on whether there may be a valid claim with reference to the policy wording, the circumstances of your claim and, now, with reference to the authoritative guidance of the Supreme Court judgment.
We appreciate that in addition to competitive pricing, our clients want as much certainty as possible about legal costs. Where possible, we will provide a fixed price option for a matter, or a discreet aspect of a wider matter. We are happy to discuss fee arrangements with potential clients depending upon the specific circumstances involved.
Contact our specialist insurance team today.
Chris Thompson of IBB Law LLP 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.
