Context
The Supreme Court delivered its judgment in the FCA’s business interruption insurance test case at 9.45am, today, 15th January 2021.
The Supreme Court has substantially allowed the FCA’s appeal on behalf of policyholders. This completes the legal process for impacted policies and means that many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid.
Key points to note
- The Supreme Court judgment is complex; it runs to 112 pages and deals with many issues.
- The FCA’s legal team at Herbert Smith Freehills has published a bulletin on its website which can be found here: https://hsfnotes.com/insurance/2021/01/15/supreme-court-hands-down-judgment-in-fcas-covid-19-business-interruption-test-case/
- The key points are summarised:
- The FCA argued for policyholders that the ‘disease’ and ‘prevention of access’ clauses in the representative sample of 21 policy types provide cover in the circumstances of the coronavirus (Covid-19) pandemic, and that the trigger for cover caused policyholders’ losses.
- The High Court’s judgment last September said that most of the disease clauses and certain prevention of access clauses (12 policy types from the sample of 21, issued by six insurers) provide cover and that the pandemic and the Government and public response caused the business interruption losses. The six insurers appealed those conclusions for 11 of the policy types, but the Supreme Court has dismissed those appeals, for different reasons from those of the High Court.
- On the FCA’s appeal, the Supreme Court ruled that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover. This will mean that more policyholders will have valid claims and some pay-outs will be higher.
- The judgment brings to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market which will now lead to claims being successful.
- The FCA’s decision to bring the test case has removed the need for policyholders to resolve many key issues individually with their insurers.
- It has enabled policyholders to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market.
- The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers.
- The judgment does not determine how much is payable under individual policies but provides much of the basis for doing so.
- Following the High Court’s judgment, insurers decided to pay claims on some policies and the FCA asked insurers to progress claims on other policies that the High Court said provided cover so that they could be settled quickly following the appeals to the Supreme Court.
- The FCA now intends to 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.
- Each policy will need to be considered against the detailed judgment to work out what it means for that policy.
- The FCA has said that policyholders with affected claims can expect to hear from their insurer soon and that policyholders with questions should approach their broker, other advisers, or insurer. Policyholders who remain unhappy following their insurer’s assessment of their claim may be able to refer their claim to the Financial Ombudsman Service, whose role is to resolve individual disputes.
Next steps
- The Supreme Court’s judgment will be distilled into a set of declarations. The FCA and Defendant insurers are working as quickly as possible with the Supreme Court to enable the Court to issue its declarations.
- The FCA will publish a set of Q&As for policyholders to assist them and their advisers in understanding the test case. The FCA will also publish a list of BI policy types that potentially respond to the pandemic based on data which it will be gathering from insurers.
- The FCA has published draft guidance for policyholders on how to prove the presence of coronavirus, which is a condition in certain types of policy. The consultation relating to the draft guidance closes on 18th January, but the FCA is extending the closing date to 22nd January only for any supplemental comments arising from the judgment. The FCA will issue finalised guidance as soon as possible after that.
- The FCA will continue to keep firms and policyholders appraised of matters as they progress, through its dedicated webpage which can be found here: https://www.fca.org.uk/firms/business-interruption-insurance