The High Court has handed down judgment in an expedited test case, which examined whether a selection of business interruption (BI) insurance policies provide cover in relation to COVID-19. The Court found in favour of the policyholders on the majority of the key issues.
The case was originally brought by the Financial Conduct Authority (FCA) on behalf of policyholders, in order to provide some clarity and certainty in relation to the extent of cover available, based on some of the most commonly used policy terms and conditions. The Court also heard arguments from the Hospitality Insurance Group (launched on behalf of hospitality sector businesses against insurers who continue to refuse to pay losses flowing from the Government's lockdown and COVID-19) and Hiscox Action Group (which represents Hiscox customers who have had their BI insurance claims denied). It was against eight defendants – insurers who had agreed to be part of the test case – and considered 21 sample wordings from these insurers’ policies.
Due to the Coronavirus pandemic and resulting lockdown, many businesses of all sizes – but particularly SMEs – were forced to temporarily cease trading, or take other measures which negatively impacted their business. Many subsequently attempted to claim for these losses on their BI insurance policies.
Many BI policies for SMEs are focused on property damage, but some also cover other causes, such as infectious or notifiable diseases, non-damage denial of access and public authority closures or restrictions. While some insurers have accepted liability, others do not believe that their policies are drafted in such a way as to provide cover for COVID-19 and are disputing liability to pay out under the BI policies.
In order to attempt to resolve the issue as quickly as possible, the FCA sought to fast track the resolution of coverage disputes, by going to court to obtain a judgment that clarifies whether or not specific policy wordings such as ‘disease clauses’ and ‘denial of access clauses’ apply to the current circumstances presented by COVID-19.
As such, the recent judgment is both much anticipated, and very welcome, for many businesses. However, different conclusions were reached in respect of the various policy wordings under consideration. The judgment confirms that most, but not all, of the ‘disease clauses’ in the sample BI policies should provide cover, and that certain denial of access clauses provide cover, depending on the detailed wording of the clause and how the business was specifically affected by the Government’s response to the pandemic. Reliance on a ‘denial of access’ clause, however, will not provide absolute cover, but will be subject to the specific factual circumstances such as whether the business was actually ordered to close its doors as a result of the pandemic and any other relevant conditions of the policy.
The ruling also clarified that the pandemic and the response by both the Government and the public were a single cause of the covered loss. This is important as it was found to be a requirement in order for claims to be paid.
However, this is not the end of the matter. It is important to remember that although the Court found in favour of the majority of the policyholders, it did not say that the eight defendant insurers are liable across all of the types of policy wording considered. Further, whilst the judgment resolves some of the contractual uncertainties faced by policyholders it does not mention how much should be payable to the policyholders as a result of the interruption to their business.
As such, each policy needs to be examined against the very detailed and complex judgment and there will be different outcomes for different businesses depending on the wording of their insurer’s policy. In addition, the ruling may well be appealed, although the FCA is pushing for any appeal to be expedited.
Despite this, the test case does deliver some key clarity on a particularly contentious issue, and it is an important step in helping businesses to make a case for a pay out. In particular, it has removed the need for policyholders to resolve a number of the key issues individually with their insurers. Following the judgment, affected policyholders should expect to hear from their insurers about next steps.
If COVID-19 has had an impact on you or your business and you would like to seek advice on the possible rights available under your BI insurance policy, or if you have not yet heard from your insurer following the High Court judgment, please speak to one of our expert team.