The Supreme Court last week handed down judgment in the important case concerning business interruption insurance – The Financial Conduct Authority v Arch and Others.
This new Judgment has been eagerly awaited by businesses up and down the country, hoping that insurers would have to pay out on claims brought under business interruption policies and so alleviate some of the financial difficulties those businesses continue to face.
Following the lockdown in March (and the subsequent restrictions) many businesses suffered significant losses and looked to claim under their business interruption insurance policies. For some policies, cover was defined in terms of loss arising from the impact of particular diseases; in others, loss arising from restrictions in access to business premises (or a hybrid, combining both disease and access).
Some insurers accepted liability under these policies, other insurers did not, arguing (amongst other issues) that the wording of the policies was never intended to cover the circumstances of the COVID-19 pandemic. This led to concern as to the lack of clarity and certainty of cover and raised the point as to why businesses had had their particular insurance cover in the first place.
The Financial Conduct Authority (FCA) identified 370,000 policyholders holding 700 types of policies issued by 60 insurers which could all have been affected. The FCA then brought a test case last year on behalf of a number of policyholders whose businesses had suffered during the pandemic; it focused on 21 types of policy issued by eight insurers.
The High Court considered the case in September and the judgment which followed was broadly favourable to the policyholders. Amongst other issues, the High Court found that most of the disease clauses and certain prevention of access clauses did provide cover and that the pandemic (and responses by the Government and the public) did cause loss because of the business interruption. After that decision, six insurers appealed with regard to 11 of the policy types. In turn the FCA also appealed other aspects of the High Court judgement.
Because of the importance of this test case, the appeal ‘leap frogged’ the Court of Appeal and went straight to the Supreme Court. The Supreme Court judgement has now been handed down and the court has held that cover may, after all, be available for partial closure of premises (as well as full closure). Also cover may be available for mandatory closure orders even where they were not actually legally binding. The court also held that valid claims should not be reduced because the loss would have resulted in any event.
The Judgment of the Supreme Court means that more policyholders will have valid claims and some pay-outs to businesses will be higher than expected. The FCA is now working with insurers to process and conclude claims without delay, and to make interim payments to businesses if possible.
This key case does not cover all the disputes that businesses had with their insurers. However, it does resolve some of the key uncertainties as to whether a policy does provide cover. It is also likely that the judgment will impact on a number of similar insurance policies to those considered, which should lead to many more businesses being covered for their losses.
The intention is that the judgement will be distilled into a number of declarations. The FCA will look to publish a set of Q&As for policyholders and their advisors. Policyholders can be kept appraised of developments via the FCA’s dedicated webpage: https://www.fca.org.uk/firms/business-interruption-insurance
For many businesses, the impact of the pandemic has been the most difficult period of trading they can remember. The resolution of their insurance claims for business interruption is a major piece of good news at the start of what looks to be another uncertain year.
If you would like to know more about how our team can support your business through the pandemic, please speak to your usual Druces contact or: