COVID-19 has led to widespread business disruption including significant financial loss to many businesses. Many insurers have refused to make a decision on claims on policies that relate to the consequences of COVID-19, arguing they were never meant to cover such unprecedented restrictions - read our previous update about business interruption insurance here.
Test case
The FCA, the regulator of insurers, has brought a test case in the High Court to seek clarity about the meaning and effect of certain BI insurance policy wording in the context of COVID-19. The FCA represented the interests of a large number of policyholders who purchased relevant policies, many of whom are SMEs.
Proceedings began on 9 June 2020 with judgment being handed down on 15 September 2020. The Defendant parties (8 insurance companies) placed before the Court a 21-representative sample of the standard form business interruption policies.
This sample included the three broad categories of wording found in insurance policies:
- Disease wording – losses caused by infectious disease where there have been cases at the premises insured or within a specific distance of the premises.
- Prevention of access/public authority wording – losses caused whereby access to the premises has been prohibited due to government restrictions or authority restrictions.
- Hybrid wording – business interruption caused by a combination of inability to use the premises or restrictions imposed by a public authority due to disease.
The FCA has published the representative sample of policy wordings here. Even though this is only a representative sample and is not intended to cover all possible disputes between policyholders and insurers, the judgment has provided welcome clarity on how clauses in other policies should be interpreted.
Judgment
In summary, the judgment, of the High Court, which runs to over 160 pages found in favour of the FCA on the majority of key issues.
- Most of the disease clauses in the sample provided cover, the Court finding that COVID-19 was an occurrence of disease and the business interruption followed the disease.
- Certain denial of access clauses in the sample provided cover although this was dependent on the wording of the clause and how the business was affected by the Government’s response to the pandemic.
- The Court also clarified that the pandemic and the Government and public response was a single cause of the covered loss, which is a key requirement for a policy to pay out.
Appeal in the Supreme Court
The FCA, six of the insurer defendants and the Hiscox Action Group (an intervener on behalf of certain policy holders) have appealed rulings on 13 of the examples and the appeal has been heard on an expedited basis.
The Supreme Court has, in summary, been asked to determine certain matters of construction relating to the different clauses in addition to whether or not the Court was correct in its analysis of the case Orient-Express Hotels Ltd v Assicurazioni Generali SpA. The Orient Express Hotel in New Orleans claimed on its business interruption policy after storm damage forced the hotel to close for two months. At appeal, the court held that the hotel would have suffered business loss even if it was not damaged, as the city was forced to shut after the hurricane, leaving the hotel only recovering a limited amount under its insurance policy. Insurers relied heavily on this case, however the High Court distinguished it as not having an impact on the construction of the wordings it was being asked to consider in this case.
We await the outcome of the Supreme Court appeal heard last week.
Our team are experienced in helping clients understand the options and guiding them through each process. Contact us today to discuss any of of the issues raised above in relation to business interruption insurance.