The Supreme Court has handed down its judgment in the Covid-19 Business Interruption insurance test case, allowing all four of the Financial Conduct Authority (FCA)’s appeals and unanimously dismissing those brought by 6 of the 8 Insurers involved.
Finally some positive news for policyholders and businesses across the country that have been suffering huge and ongoing financial losses as a result of the Covid-19 pandemic and subsequent lockdowns. The judgment should mean that many thousands of policyholders who purchased business interruption cover will now have their claims for coronavirus-related business interruption losses paid.
The FCA’s aim in bringing the test case was to “urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible”. A sample of 21 types of policies, issued by 8 insurers were used as a representative selection to put forward policyholders’ arguments to their best advantage in the public interest. However, the FCA believes the Supreme Court’s decision may affect some 700 policies held by 370,000 policyholders, across 60 different insurers.
The FCA argued for policyholders that the ‘disease’ and ‘prevention of access’ clauses in the representative sample provide cover in the circumstances of the Covid-19 pandemic, and that policyholders’ losses were covered before the insured peril was triggered i.e. proximate cases of COVID within a certain radius of the insured premises or the legalising of business closures. The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and 'causation' issues to provide clarity for policyholders and insurers.
On the FCA’s appeal, the Supreme Court ruled that cover may be available for partial closure of premises and for mandatory closure orders that were not legally binding. It ruled that valid claims should not be reduced because the loss would have resulted in any event from the pandemic. This will mean that more policyholders will have valid claims and some pay-outs will be higher.
The High Court’s judgment last year found that 12 of the 21 sample policies provided cover, however, on appeal the Supreme Court also found a further two QBE policies also provided cover when considering their disease clauses. In line with its conclusions on other disease wordings, the description of the insured peril within the policies as “any occurrence of a notifiable disease within a radius of 25 miles of the premises” made it clear that the clause covered losses caused by any cases of illness resulting from Covid-19 that occur within a radius of 25 miles of the business premises. This brings the number of business interruption policies which the Courts determined cover the risk presented by Covid 19 to 14 from the 21 sampled.
The judgment provides authoritative guidance for the interpretation of similar policy wordings and claims. It can be taken into account in other court cases, including in Scotland and Northern Ireland, by the Financial Ombudsman and by the FCA in looking at whether insurers are handling claims fairly.
The judgment does not determine how much is payable under individual policies, but provides the basis for doing so. Each policy needs to be considered against the detailed judgment to work out what it means for that policy.
So although the judgment paves the way for claims to now be paid, each case will depend on its own circumstances and there is plenty of scope for argument on evidencing and valuing losses. Because of the ongoing difficulties, however, policyholders will be keen that that action is taken immediately if their insurer drags their feet.
No doubt there will be a number of legal claims being made in light of this final decision.
The full judgement can be accessed here
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