Today the Supreme Court handed down its judgment in the FCA's Business Interruption (BI) test case.
The judgment substantially upholds the appeals made on behalf of policyholders by the FCA and dismisses the appeals made by insurers.
The judgment has been much anticipated by insurers and by the several thousand policyholders whose business has been affected by Covid-19. It follows a High Court judgment on a representative sample of policies with eight insurers which determined that:
- most (but not all) of the “notifiable disease” clauses in the sample provide cover;
- certain “denial of access” clauses in the sample provide cover, but dependant on the detailed wording of the clause and how the business was affected by the government response to the pandemic, such as whether the business was ordered to close completely; and
- the COVID-19 pandemic and the government and public response were a single cause of the covered loss.
Six insurers who took part in the original High Court case appealed to the Supreme Court as to the construction of their policy wordings and certain issues of causation, and the FCA brought an appeal on the questions of:
- whether negative effects of COVID-19 predating the “trigger” for a valid claim should be taken into account to reduce the amount claimable;
- whether denial of access wordings can be triggered by actions that do not have the force of law (such as government guidance and announcements);
- the extent to which access to premises must be “prevented” to engage denial of access wording (for example, whether a total closure of the premises is required); and
- the scope of particular policy wordings of insurer QBE.
In a press release published in conjunction with the judgment, the FCA has reported that the Supreme Court:
- substantially allowed its appeal on behalf of policyholders against insurers (albeit qualified in respect of two of the issues appealed); and
- dismissed the appeals made by 6 of the insurers.
As a result, it reports that "more policyholders will have valid claims and some pay-outs will be higher"
Notably, the Supreme Court has overruled the much-commented upon judgment in Orient Express Hotels Ltd v Assicurazioni Generali SPA, where it was found that a policyholder could not claim in respect of the loss of income caused by physical damage to their New Orleans hotel following Hurricane Katrina because, applying a “but for” test, that damage could not be said to have caused their loss when in any case the surrounding area had been evacuated. This aspect of the ruling is likely to be most notable for the perspective of insurance law more broadly.
The FCA described its aim in pursuing the test case as seeking High Court judgment “clarity for as wide a range of parties as possible, as quickly as possible” by settling issues common to several disputed claims made for business interruption losses suffered as a result Covid-19 – which would otherwise have needed to be resolved individually. It is therefore to be hoped that the Supreme Court’s judgment should prompt the resolution of the majority of disputes still outstanding; policyholders and insurers can now review their policies in light of the judgment to determine where their wording and factual circumstances are relevantly similar and, hence, whether (subject to the other terms of the policy) a claim can be made.
Consequently, the FCA has stated it will now work with insurers to ensure the quick payment of claims which the judgment confirms should be paid – encouraging interim payments where possible in line with its previous “Dear CEO” letter.
"Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders... we will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid"