In its judgement handed down today (September 15) the High Court said that most, but not all, of the ‘disease’ clauses it had examined provided cover.
The judgement also said that certain ‘denial of access’ clauses in the sample provided cover, but this depended on the detailed wording of the clause and how the business was affected by the government’s response to the pandemic, such as whether it was subject to mandatory closure and ordered to close completely.
The regulator had argued on behalf of policyholders that the ‘disease’ and ‘denial of access’ clauses in its sample of policy wordings provided cover during the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
The FCA said the test case 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.
Christopher Woolard, interim chief executive of the FCA, said: “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”.
Mr Woolard added: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.
"Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful."
Many policyholders whose businesses were affected by the Covid-19 pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.
Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage.
But some policies also cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).
In some cases insurers accepted liability under these policies but in other cases they disputed liability, leading to concerns about the lack of clarity and certainty.
The FCA said its aim in bringing the test case was to urgently clarify key issues of uncertainty for as many policyholders and insurers as possible.
About 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.