Thousands of policyholders will get business interruption (BI) payouts on Covid-19 related losses, following a Supreme Court appeal judgment issued today.
The judgment allows most of the points appealed on behalf of policyholders by the Financial Conduct Authority (FCA) which took a test case on common BI policy wordings in July last year.
Many diversified farm businesses hit hard by the knock-on effects of the pandemic restrictions are among those who will benefit from the judgment.
The judgment ends legal arguments under 14 types of policy issued by six insurers. It also means that claims under many similar policies in the wider market will now be successful.
“This is a good day for the thousands of businesses who hold business interruption insurance,” said Graham Small, partner at JMW Solicitors.
“Those that have made a claim can be confident they will be paid and any businesses that have had a claim rejected previous to today’s ruling should certainly be thinking about revisiting it.
“A lot of companies will be entitled to multiple claims for disruption incurred throughout the past 10 months.
“The ruling will also increase the value of claims paid to businesses – instead of claims starting on the day legislation was introduced, they should be made from the day that initial direction or guidance was given by the government,” said Mr Small.
“The ruling also prevents insurers from arguing that turnover of a business should take into account any downturn before the formal lockdown resulting from the Covid scare.”
An NFU Mutual spokesperson said: “We are currently reviewing whether any part of the Supreme Court judgment has the potential to impact our customers. However, we do not expect this ruling to affect our policies.”
FCA executive director, consumers and competition, Sheldon Mills, said: “This test case involved complex legal issues. Our aim throughout 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, making interim payments wherever possible.
“Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”
The FCA argued that the “disease” and “prevention of access” clauses in the representative sample of 21 policy types provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
The High Court’s judgment in September said most of the disease clauses and certain prevention of access clauses provide cover and that the pandemic and the government and public response caused the BI losses.
Six insurers appealed those conclusions for 11 of the policy types, but the Supreme Court dismissed those appeals, for different reasons than those of the High Court.
On the FCA’s appeal, the Supreme Court also 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
- Valid claims should not be reduced because the loss would have resulted in any event from the pandemic
- 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.
Most small- and medium-size business insurance policies are focused on property damage and only have basic cover for BI as a consequence of that.
However, some policies also cover BI from other causes, in particular infectious or notifiable diseases, and prevention of access and public authority closures or restrictions. In some cases, insurers have accepted liability under these policies.
In other cases, insurers have disputed liability where policyholders considered that they had cover, leading to widespread concern about the lack of clarity and certainty.
The FCA’s aim in bringing the test case was to quickly clarify key issues of contractual uncertainty for as many policyholders and insurers as possible.
The FCA estimates that 370,000 policyholders were identified as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the test case.
The FCA will publish a set of Q&As for policyholders to help them and their advisers understand the test case.
It will also publish a list of BI policy types that potentially fall within the scope of the test case and appeal judgment.
The FCA has also published draft guidance for policyholders on how to prove the presence of coronavirus, which is a condition in certain types of policy.