Thursday, 17 September 2020
How the FCA business interruption insurance test case judgement affects East Midlands businesses
The High Court has handed down the much-awaited judgement on a well-publicised legal case by the Financial Conduct Authority (FCA) against a number of insurers that tests whether they should pay out on claims for Covid-related losses under business interruption cover. Chris Mallett, associate director at insurance firm Aston Lark’s Derby office, explains what it means for businesses.
The judgement is complex and runs to more than 150 pages. It is clear, however, that the High Court has agreed a number of policies do provide insurance cover for business interruption losses as a result of Covid-19 – bringing welcome news for a number of businesses that have been heavily impacted by the pandemic.
It does not provide any sweeping or general conclusions and each page of the judgement will consequently need to be carefully reviewed to fully consider the coverage position under each of the included wordings.
Chamber members should expect their insurance advisers to be undertaking this review on their behalf as a matter of urgency.
Pleasingly, the court has ultimately viewed these policies objectively and applied the correct stance of deciding on whether a policy does or does not cover Covid-19 based on what is written – and what a reasonable person would have understood the parties to have meant by the language used.
What is the FCA test case on business interruption insurance all about?
The FCA test case – which was heard during an eight-day trial in July – considered 21 sample wordings from eight insurers. These wordings were identified and included in the test case mainly due to the existence of certain non-damage denial of access and public authority clauses, as well as specific infectious disease extensions.
While only 21 sample wordings were specifically included, the FCA estimates there are 700 types of policies across 60 different insurers and 370,000 policyholders that could potentially be affected by the test case.
Although the court has ruled that most of the policies respond to Covid-19, there is the matter of applying the judgement to a number of differing factual circumstances, in terms of how policyholders were impacted by Covid-19.
For example, some businesses were ordered to close as a direct order of the Government and others weren’t.
The judgement did not say the eight defendant insurers are liable across all the 21 different types of policy wording contained in the sample and made it clear that each policy needs to be considered against the detailed judgement for any policyholder to understand if they have an insurable loss.
The court provides a different outcome for policyholders based upon these two different scenarios in some instances, depending on the policy wording.
This is one example among many – hence the need to spend time to fully digest the judgement and consider the implications for each business.
For the sake of the test case, the categories of business listed here were considered.
Next Steps following the FCA business interruption insurance test case
We anticipate that one or more of the insurers will appeal the judgement.
In fact, insurers have already asked for more time to submit an application for permission to appeal.
Any appeal does not stop businesses seeking to settle their claims with their insurer before the outcome of the appeal.
We do expect that any appeal will go directly to the Supreme Court, which should ensure the pace at which this case has been dealt with to date is maintained.
In the interim, we expect the FCA to set guidelines and deadlines for insurers to communicate with affected policyholders following the judgement, although such guidelines may be altered if and when insurers mount an appeal.
A hearing will be fixed with the High Court where any applications for appeal will be made. The FCA will publish the hearing date and details on its website.
As a strategic partner of East Midlands Chamber, Aston Lark is available to support all members at no cost. Companies can discuss what the High Court judgement means for their Covid-19 business interruption claims by emailing email@example.com.Back