In what has been heralded as great news for businesses, on 15 January 2021, the Supreme Court found considerably in favour of the Financial Conduct Authority, and, in turn, policyholders (including many small businesses) in the business interruption insurance test case relating to losses suffered due to the Coronavirus pandemic.
This result substantially opens and widens the door for claims by the estimated 370,000 policyholders who have cover against a Notifiable Disease, that is, COVID-19.
It will significantly assist businesses in the retail, leisure, and hospitality industries who had to close their premises and were unable to rely on any online business instead.
Many businesses affected by the pandemic, particularly SMEs, suffered substantial losses, especially when lockdown was announced by the government in March 2020 and business premises were forced to close.
At that point several claims were made under business interruption policies.
Most policies focus on actual physical damage to property so are unlikely to pay out in relation to the coronavirus pandemic and its effects.
However, certain policies also cover business interruption from other causes, such as infectious or notifiable diseases and prevention of access and public authority closures or restrictions.
On 5 March 2020, Covid-19 was made a "Notifiable Disease" and on 11 March 2020, the World Health Organisation declared Covid-19 to be a pandemic.
In some cases, insurers accepted liability under these latter policies. In other cases, insurers had disputed liability but policyholders considered that they should be covered.
This caused widespread concern about the lack of clarity and certainty. The FCA therefore issued the claim in June 2020 to achieve the maximum clarity possible for the maximum number of policyholders and their insurers.
The test case related to just eight insurers (including Hiscox, Royal & Sun Alliance and Zurich) and some 21 sample policy wordings, but it will considerably assist policyholders to successfully claim under the 700 other types of business interruption policies issued by some 60 different insurers.
Last September the High Court resolved most of the key issues. However, as the parties were unable to reach agreement on the remaining matters, the FCA made a 'leapfrog' appeal to the Supreme Court (without going to the Court of Appeal first).
The Supreme Court judgment (which ran to some 112 pages) decided the following relevant issues (relating to loss) where the policies covered:
- Disease Clauses - The general nature of these clauses is that they provide insurance cover for business interruption loss caused by the occurrence of a notifiable disease at or within a specified distance of the policyholder’s business premises.
- Prevention of Access clauses – These cover prevention of access to premises as a result of government or public authority action.
- Hybrid Clauses - Both of one and two above.
The Supreme Court also had to consider the effect of "Trends Clauses" (such clauses are part of the machinery used in insurance policies to quantify the policyholder’s financial loss) as well as the decision in Orient-Express Hotels Ltd v Assicurazioni Generali SpA, which concerned a claim for business interruption loss arising from damage to a hotel in central New Orleans from wind and water as a result of Hurricanes Katrina and Rita in the autumn of 2005.
The Supreme Court (together with the parties to the case) will shortly set out the effect of its judgment by way of a set of Declarations, and each policy will need to be considered and read on its own wording. However, the Court's general findings were as follows:-