Many businesses whose insurance included business interruption policies have been keenly awaiting the outcome of a test case brought by the Financial Conduct Authority (FCA).
Updated 18 January 2021
Background
As a result of the Covid-19 pandemic, many businesses across the UK suffered significant losses. Those who had insurance policies that referenced business interruption stemming from ‘disease clauses’ or denial of access due to public authority restrictions (denial of access clauses), subsequently filed claims with their insurers.
In some cases, the insurers did accept liability under these policies. In others the liability was disputed. Overall, this led to legal uncertainty and a lack of clarity in the business interruption insurance market, which the FCA was keen to address.
Seeking clarification for business interruption insurance policies
So, on behalf of 370,000 policyholders, the FCA launched a test case to clarify the key issues of the contractual uncertainty for both policyholders and insurers alike. Key to the case was the examination of a representative sample of business interruption policy wordings issued by eight insurers.
The first judgement ruled in favour of the policyholders and the FCA on the majority of key issues. It was, however, complex and runs to over 150 pages. You can read more about the judgement here. The case was appealed and on 15 January 2021, the Supreme Court ruled again in favour of the policyholders and the FCA. See here.
What this means for policyholders
This latest judgment resolves the outstanding legal arguments surrounding 14 types of policy issued by six insurers. It also reflects a large number of similar policies in the wider market, which will now lead to claims being successful.
The test case has removed the need for policyholders to resolve many key issues individually with their insurers.
The FCA is keen to point out the test case was not intended to encompass all possible disputes, but instead has resolved some key contractual uncertainties and 'causation' issues to give clarity to policyholders and insurers alike. The judgement doesn’t determine how much is payable under individual policies, but it does provide much of the basis for doing so.
The FCA is now planning to work with insurers so that they quickly conclude those claims’ processes that the Supreme Court has said should be paid. This may involve providing interim payments where possible.
Each policy will need to be considered against the detailed judgment to work out what it means for it. Policyholders with affected claims should expect to hear from their insurer soon. In the meantime, Policyholders with questions should approach their broker, other advisers or insurer.
Those who are unhappy with their insurer's assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role it is to resolve individual disputes.
The Supreme Court’s judgment will now be distilled into a set of declarations. It is expected that the FCA will publish a set of Q&As for policyholders to assist them and their advisers in understanding the test case.
The FCA will also publish a list of BI policy types that potentially respond to the pandemic based on data that it plans to gather from insurers. It has already published draft guidance for policyholders on how to prove the presence of coronavirus (which is a condition in certain types of policy). Following a consultation, the FCA intends issue finalised guidance in late January or early February.
Can we help?
Whilst we cannot offer legal advice on an insurance policy (and we do encourage businesses to seek legal expertise in this area), we are helping a number of business quantify the losses caused by business interruption during the pandemic. This is helping inform claims and provide necessary evidence to be considered by their insurers.
If we can help in this field, please get in touch with your usual Shipleys contact or one of our team of specialists.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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