The High Court has arguably ruled in favour of the Financial Conduct Authority (FCA) in its recent test case to clarify whether some businesses shut down by the Covid-19 pandemic can claim on their Business Interruption (BI) insurance. The Court has decided that certain policies which provide ‘disease’ cover or ‘denial of access’ cover should pay claims, but this is very dependent on the actual wording of the policy. Around 370,000 policyholders may now benefit from pay-outs which had previously been denied by insurers.
However many SME BI policies only have basic cover, which focus on property damage and do not cover pandemics, so many businesses will be unable to claim under their insurance.
The FCA said it brought the test case “to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims” (see Brunel News June 2020). It selected a sample of 21 policy wordings issued by 8 insurers and put forward policyholders’ arguments about why the policies should respond to claims.
In the hearing, insurers argued that the Covid-19 was not the direct cause of policyholder’s losses, which were in fact caused by the government’s response to the pandemic and lockdown. The court rejected this ‘causation’ argument, ruling that the Covid-19 pandemic and the government and public response were a single cause in interpreting the cover under the policy.
Despite the ruling in favour of some policyholders, the court did not say that insurers are liable for all claims and further detailed work will now be needed to assess which claims are covered under each policy.
A number of the test case participants have appealed the judgement, which will be heard in the Supreme Court after permission was granted for the case to ‘leapfrog’ the usual Court of Appeal stage.
James Burgoyne, Director – Claims & Technical, of Brunel Professions said the judgement was nuanced with winners and losers on either side. “Whilst not being oblivious to the immediacy of the decision for businesses struggling with the consequences of anti-coronavirus measures, a key aspect for professionals was on the matter of causation. The High Court has overturned the previously important Orient Express case and this is relevant to professionals in terms of causation issues generally. It will therefore be significant if the Supreme Court supports this view.”
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