‘Insurance – an ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.’
Ambrose Bierce
Introduction
On 15 January 2021, the Supreme Court handed down its judgment in the COVID-19 insurance test case for business interruption losses – The Financial Conduct Authority (the “FCA”) v Arch and Others [2021].
By way of background, many businesses across the UK have been incurring substantial losses due to the implications of the COVID-19 pandemic. This had led to a significant number of insurance claims being made for business interruption, particularly under those policies with what are known as ‘prevention of access clauses’ and/or ‘disease clauses’.
However, in many cases, the insurers have been disputing liability, so consequently, the FCA test case was brought in order to clarify the position on policy coverage through the consideration of 21 sample BI policy wordings from 8 different insurers.
Hailed as a landmark victory for policyholders, the Supreme Court found in favour of a group of small businesses with business interruption insurance policies. The headline is that the Court, ruling effectively means that insurers are to pay-out on claims for financial losses incurred during the first national Coronavirus lockdown in spring 2020.
As a result of this case, thousands of small businesses could be eligible to receive insurance pay-outs as a result of Coronavirus related losses stemming from the first national lockdown in a decision which could cost the insurance sector hundreds of millions of pounds in pay-outs.
So what does this mean?
The sample test case of 21 policies provided the courts with guidance for the interpretation of clauses plus the wordings of a wider pool of 700 BI insurance policies sold by around 60 insurance companies. Estimates are on the back of this decision, that it is expected to benefit a proportion of 370,000 businesses in total.
The key thing to remember is that in practical terms, all policies including insuring clauses which mirror those examined and approved by the High Court and the Supreme Court will provide cover in cases where the pandemic has resulted in business interruption.
However, if your policy has the wording, there is no doubt that this could offer a real lifeline to many businesses.
NB: do remember that business interruption insurance policies for new and renewing customers have in all likelihood, been amended. As such, this ruling may only be relevant for policyholders who suffered loss of earnings during the first national lockdown of spring 2020.
Conclusions
Key take-aways from the above:
- Please carefully consider your own insurance policies in light of this judgment;
- Double check and be cautious around any clauses or wording which differ from the sample wording considered in this case and which have the effect of excluding or limiting cover;
- Get in touch with your broker, both to check the effect of the judgment on their policy and any further issues which may still need to be resolved with your insurers.
- Keep an eye on the FCA’s consultation draft guidance, first published on 11 December 2020 (https://www.fca.org.uk/publications/guidance-consultations/draft-guidance-business-interruption-insurance-test-case-proving-presence-coronavirus). The FCA will issue finalised guidance as soon as possible post 22 January 2021, which will take into account any supplemental comments arising from the Supreme Court judgment. The FCA also has a dedicated webpage for business interruption insurance which may prove helpful in the first instance.
Please drop us an e mail or call if you need any further details or assistance and stay safe and well.
Roger
