High Court finds in favour of policyholders on key BI test case issues

The High Court has largely found in favour of policyholders in a crucial test case aimed at resolving disputed Covid-19-related business interruption (BI) claims. In its judgment, the court found in favour of key arguments advanced by policyholders. The test case was bought by the Financial Conduct Authority (FCA) on behalf of small businesses that had BI losses related to the coronavirus pandemic denied by their insurers. The case examined sample wordings from eight insurers, however the judgment could affect some 370,000 policyholders with similar policies. The 150-page-long judgment said that most, but not all, of the disease clauses in the sample provide cover. It also said that certain ‘denial of access’ clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the government response to the pandemic. The judgment also clarified that the Covid-19 pandemic and the government and public response were a single cause of the covered loss, a key requirement for claims to be paid even if the policy provides cover. The judgment, which may yet be appealed, will bring welcome news for many policyholders, said the FCA. However, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court. Each policy will need to be considered against the detailed judgment to work out what it means for that policy, the FCA said in a statement. Policyholders with affected claims can expect to hear from their insurer within the next seven days, it added. “We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders,” said Christopher Woolard, interim chief executive of the FCA. The judgment removes a large number of “roadblocks” to successful claims for Covid-19-related BI, as well as clarifying those that may not be successful, the FCA said. The judgment aims to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. It does not determine how much is payable under individual policies. “Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps,” Mr Woolard said. The regulator and defendant insurers are considering the judgment and what it might mean in respect of any appeal, the FCA said. However, parties have agreed that they will seek to have any appeal heard on an expedited basis. This includes exploring the possibility of any appeal being a ‘leapfrog’ appeal to the Supreme Court, rather than needing to be heard by the Court of Appeal first. “If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this,” Mr Woolard said. In its initial response to the judgment, the Association of British Insurers (ABI) said the judgment “divides evenly” between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts, it said. “This is a complex judgment spanning 162 pages and 19 policy wordings, and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead,” said Huw Evans, director general of the ABI. Hiscox, one of the eight insurers participating in the test case, said it is assessing the judgment to ascertain how the court's conclusions should be applied to the claims and circumstances of individual Hiscox policyholders. However, as a result of the judgment, Hiscox estimates its additional Covid-19 BI claims at less than £100m net of reinsurance. This is a reduction of £150m from the upper end of its previously published loss scenario.

High Court finds in favour of policyholders on key BI test case issues

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