As a result of the pandemic, many businesses have sought to claim on their business interruption (BI) insurance polices for the disruption and financial losses they have sustained.
Variations in policy wording and uncertainty over the applicability of pandemic or disease clauses naturally led to the refusal by insurers of a substantial number of claims.
As a result, in May 2020, the FCA brought a test case (FCA v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm)) on the basis of a representative sample of BI polices. The case was complex and focused on the specific wording of a number of different clauses to determine, among other issues, whether the Covid-19 outbreak could be considered a 'disease' that gave rise to cover, and whether general closures of businesses and reduction in footfall due to lockdowns, local or national, gave rise to cover for 'prevention of access' or 'hindrance' of business. The High Court also considered whether cover could be reduced on the basis that takings would have been limited in any event by the effects of the pandemic, or whether the reduction should be compared to 'normal' business activity pre-Covid.
Whilst some of the uncertainty was resolved by the High Court judgment in September 2020, certain key issues were sufficiently contested that the Court gave leave to the parties to appeal to the Supreme Court, which they did. In January 2021 the Supreme Court found in favour of policyholders regarding the majority of the remaining issues, a result which was deemed by many to have over-stretched the strict, literal interpretation of the contracts in question in order to be more favourable to business owners. Whilst in the short term this is good for businesses which have been hard hit by the pandemic, it may result in higher premiums and the reduced availability of this kind of cover in the future as insurance companies seek to tighten their policy wording.
Following the judgment, insurers and policyholders alike have been waiting for more detailed Declarations of the Supreme Court (the Declarations) in respect of individual policy wording and the evidence necessary to prove a valid claim to be published which finally occurred on 14 July 2021. The Declarations have now been published on the FCA's website: https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-supreme-court-declarations.pdf.
At the same time, the FCA also published:
- A table - giving guidance on the Declarations for the most common policy types, arranged by policy type; and
- A table - setting out the outcome of the case and key paragraphs of the High Court and Supreme Court judgments according to policy type in the representative sample of 21 policy wordings. The intention of this table is to provide a starting point to highlight the overall conclusions on coverage, causation and "trends" or "other circumstances" clauses and certain key paragraphs of the judgments by policy type.
Navigating the Declarations is a complex process and you will need a copy of the FCA's "Business Interruption Insurance Test Case: Representative Sample of Policy Wordings" as published on 9 June 2020 - [https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-representative-sample-of-policy-wordings-9-june.pdf] - close to hand to interpret the same. This gives a list of the different policy types taken forward for the test case and confirms the relevant wording at issue in each policy.
The FCA is of the view that the Supreme Court order and the publishing of the Declarations marks the final resolution of the test case. It reiterates on its website that insurers should not include the period between 17 June 2020 and the final resolution of the test case when relying on any time limits within which policyholders must make claims. They further maintain that brokers should assist policyholders with the swift resolution of their claims and even suggest that they immediately notify their clients if they reasonably consider that they have a claim with reasonable prospects of success.
Overall, the conclusion of proceedings and the publication of the Declarations is good news for businesses seeking to clarity whether they should or shouldn't claim under their PI policies. However, this remains a highly complex area which is very fact specific, and businesses should always seek legal advice regarding their individual situation and policy wording. For more information or coverage advice, please contact one of the Insurance team members pictured on the right.
