Business interruption insurance test case successful
- AuthorTracey Dickens
The Financial Conduct Authority (FCA) has obtained clarity from the courts, confirming that certain insurance policy wording did cover business interruption caused by the pandemic.
The FCA brought a test case to resolve the lack of clarity and certainty that existed for policyholders seeking to rely on business interruption (BI) insurance.
The judgment delivered by the High Court confirmed that most of the disease clauses in the sample of clauses submitted by the FCA provide BI cover for Covid-19. However, it depends on the detailed wording of the clause and the actual impact on the business as a consequence of the Government’s response to the pandemic, including whether the business had to close.
The case also established that the Covid-19 pandemic and the Government and public response were a single cause of the losses suffered. This is a key requirement to ensure any claim is paid where the policy includes BI cover.
The proceedings were expedited due to them raising issues of general importance which required urgent guidance to avoid injustice. The 8 insurer defendants to the case agreed to participate, with the FCA representing the interests of the policyholders. The parties agreed a sample of policy wording taken from their policies for consideration in the case. The key provisions being tested were:
- Disease wording – cover for BI due to the occurrence of a notifiable disease within a certain defined area surrounding the insured premises
- Prevention of access/ public authority wording – restricted access to the insured premises due to government or local authority actions
- Hybrid wording – restrictions imposed on insured premises in relation to a notifiable disease
The case assists insured businesses, often SME’s, to progress claims against their insurers to obtain often vital funds to enable them to survive. It is possible for the case to be appealed. However, it is hoped that the parties will do so on an expedited basis, possibly even going direct to the Supreme Court, rather than being heard by the Court of Appeal first.
The FCA’s website confirms that the test case has removed the need for policyholders to resolve key issues individually with their insurers. However, the case is not intended to cover all possible disputes. It is not intended to determine that all policies will pay out or how much they will pay.
The case should give insured businesses comfort that, where their policy wording is aligned with that tested, that they can pursue a claim under their insurance.
Anyone looking at challenging their insurer contact our Dispute Resolution Team