The Supreme Court Judgment on the FCA test case brings welcome news for many businesses seeking to claim on their Business Interruption Insurance (BI) policy. This article explains the implications of the judgment and urges those businesses affected to seek legal advice on the specific wording of their BI policy.
FCA test case
The Supreme Court has handed down judgment in the much anticipated final decision in the Financial Conduct Authority's (‘FCA’) test case relating to the business interruption insurance coverage for many thousands of small and medium sized businesses which suffered closures due to the COVID-19 pandemic and the government’s ‘lockdown’.
The case was initially heard by the High Court, which ruled against six of the nominated defendant insurers relying on a restrictive interpretation of the twenty one sample policy wordings used most commonly in business interruption clauses. A group of six insurers --Hiscox, Arch, QBE, Argenta, MS Amlin and RSA—appealed, and given the huge public interest in the case, the matter ‘leapfrogged’ the Court of Appeal and went to the Supreme Court.
Please see below links to our previous articles on the FCA test case.
- Business Interruption Insurance - An Update on the Financial Conduct Authority's Test Case
- COVID-19 and Claiming on Your Business Interruption Insurance
On 15 January 2021, the Supreme Court dismissed the appeals brought by the six insurers and in large part allowed the FCA’s appeal on a number of related issues arising from the High Court decision.
The case was complex and technical, but as a general statement, the insurers argued that the COVID-19 variant was not covered generally but only in limited circumstances (‘disease clauses’) and that business interruption insurance coverage did not extend to a government imposed lockdown (‘prevention of access clauses’).
The insurers had argued that these clauses only covered the business interruption consequences of any cases of a (strictly defined) Notifiable Disease which occurs within a radius of 25 miles of the premises insured under the policy. This meant that a business relying on a business interruption policy would have to show an occurrence of COVID-19 within a 25 mile radius which directly led to the closure of the premises and the loss. Given that most businesses were shut by government order, this interpretation effectively barred any pay-out under a policy. However, the Supreme Court held that no reasonable person would expect the clause to be interpreted in that way and that the operative test was simply to show that loss from the interruption of a business was the result of Government public health action which was caused by at least one COVID-19 case in the geographic area.
Prevention of access clauses
The insurers had, in part, argued that the national lockdowns did not amount to ‘imposed’ restrictions as they were not necessarily ordered in legislation. The Court rejected these arguments, stating ‘imposed’ meant anything from a mandatory instruction given by a public authority to any instructions to which compliance would generally be reasonably understood to be required. Lord Briggs in his concurrent judgment stated that the insurers were effectively stating that the clauses were “in reality illusory, just when it might have been supposed to have been most needed by policyholders.”
Other technical points
The Supreme Court also considered a number of technical points relating to the interpretation of trends clauses and pre-trigger losses within the individual policies which would have the effect of reducing the amount paid out to the insured. The Supreme Court again determined these issues in generally favourable terms, improving the potential recoverability of losses.
All affected insurers have now been strongly urged by the FCA to start settling claims expeditiously in the light of the Supreme Court’s decision. According to the FCA’s analysis, more than £1.2 billion could potentially be paid out to cover these claims. To assist businesses in making claims the FCA is publishing guidance on the Supreme Court ruling and the policies in question as well as various tools to assist in making a claim.
If your business was affected by the COVID-19 pandemic and government ‘lockdown’ and you have business interruption insurance, you should immediately take legal advice as to the specific wording of your policy. The High Court considered 21 separate policies in reaching the initial ruling (with the Supreme Court re-considering 13 of those policies). This will assist policyholders and their legal representatives in deciding whether to make claims under their policies and what are the prospects of success.
For further advice on this issue please contact a member of our Dispute Resolution team.