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COVID:19 : Supreme Court rules on Business Interruption Insurance

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The Supreme Court rules in favour of policyholders in the FCA’s COVID Business Interruption test case

This morning the Supreme Court handed down its judgment in which it “substantially allowed” the appeal by the FCA and campaign groups Hiscox Action Group and Hospitality Insurance Group Action. The Supreme Court’s Judgment deals with the appeals arising out of the High Court’s ruling in the FCA’s test case handed down on 15 September 2020.

Background

Due to the COVID-19 pandemic many businesses incurred losses which led to a huge number of business interruption claims being made by policyholders. Some policies focus on property damage and provide a basic level of cover for business interruption as a result of property damage. However, other policies provide business interruption cover for a number of other causes, including:

  1. Infectious or notifiable diseases (‘disease clauses’); and
  2. Prevention of access and public authority closures or restrictions (‘prevention of access clauses’).

Some insurers accepted liability under these clauses but a large number of insurers disputed liability which caused many SMEs great concern.

The FCA subsequently brought a test case on behalf of policyholders so that a number of key issues could be clarified in order to provide certainty for both policyholders and insurers. At first instance the FCA identified that there were 700 types of policies that were issued by 60 insurers that would be affected by the outcome of the test case. Therefore, it was necessary for the Court to resolve the test case urgently for policyholders and insurers alike.

The High Court’s ruling resolved the majority of the issues in favour of policyholders but a number of issues remained unanswered which led to a leapfrog appeal to the Supreme Court.

The Supreme Court Judgment

The Supreme Court Judgment runs to 112 pages long and deals with many issues some of which are very complex.

However, there are a few key points arising out of the Supreme Court’s Judgment:

  1. The FCA had argued before the High Court that the disease and prevention of access clauses provided cover for losses incurred as a result of the COVID-19 pandemic. The High Court agreed that the majority of these clauses did provide cover for losses suffered as a result of the COVID-19 pandemic and the Governments response to it. However, the insurers appealed those conclusions and today the Supreme Court dismissed those appeals.
  2. The Supreme Court found that:
  • cover might be available for partial closure of premises and for mandatory closure orders (depending on the policy);
  • valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and
  • two additional policy types from QBE provide cover.

Here is a link to the 112 page ruling: https://www.supremecourt.uk/cases/docs/uksc-2020-0177-judgment.pdf

Next Steps

The Supreme Court’s Judgment should lead to an increase in successful claims being made under the types of policy issued by the six insurers involved in the test case and a number of similar policies in the market.

However, whilst the test case has resolved a number of key issues it was not intended to encompass all possible disputes. Therefore, it is important that businesses consider the type of policy they hold in light of both the High Court and Supreme Court’s Judgments and seek professional advice before proceeding to make a claim.

Following the High Court ruling some insurers were quick to pay out on policies that were affected and in light of the Supreme Court Judgment the FCA has stated that it ‘will now work with insurers so that they rapidly conclude their claims processes on claims that the Supreme Court has said should be paid, providing interim payments wherever possible’.

If you have any queries with regards to whether your policy provides cover for business interruption as a result of the COVID-19 pandemic please contact James Clarke, Nick Cook, Nicholas Evans or Ben Rutledge.

Ben Rutledge

Assistant Solicitor

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