The FCA test case on business interruption insurance has resulted in a big win for insureds and the financial services regulator.
It was right that the issue was considered as soon as possible and the FCA has done a great job to bring insurers to court and set straight what their policies cover.
A decision in September on a claim issued in June could never be soon enough for those denied a vital cash lifeline to tide them over whilst their businesses were closed, but in legal terms that is lightning fast.
The case considered a sample of 21 policies, from eight representative insurers and according to the FCA is likely to affect around 700 policy types, 60 insurers and 370,000 policyholders.
Watching the hearing remotely there was absolutely no doubt that this was very hard fought litigation with insurers seeming to take every point conceivably available.
What does it all mean?
First, the judgment could be appealed by insurers, although it is hoped that will not happen. We should know by the end of September. Equally the FCA could appeal the few areas where the judges did not agree with them.
Second, as it stands, large numbers of insureds will now, in principle, be able to claim on their business interruption insurance. However, they still need to check which policy clause they have and assess whether their circumstances fit within the policy clause (as is the case on every insurance claim).
There are all sorts of small businesses that have the policies that were being considered: pubs, restaurants, cinemas, leisure centres, retailers, hotels, professional services firms, small manufacturers, nurseries and schools amongst many others.
There are two typical types of clause that were considered. The outcome for one is better than for the other type, although each individual claim still needs to be considered against the actual version of the clause in the policy.
These clauses cover business interruption due to a notifiable disease.
Covid-19 became notifiable on 5 March 2020 and business closures after that date should be within cover.
Insurers said that the closures resulted from government action and a pandemic, not from the existence of the disease at the premises or within one mile or the vicinity (there are numerous wordings that require the notifiable disease to be in some way ‘close’ to the business).
The judgment makes clear that closures due to the government’s regulations were caused by a notifiable disease and cover applies.
Helpfully the court also decided that these clauses were triggered from the point in time when there were cases of disease in the relevant policy area (the test generally being whether the cases were diagnosable, whether or not actually diagnosed).
This means proving cases in any given area should be far easier and there will be no need to evidence diagnosed cases within the specified distance of a business.