The FCA has recently published draft guidance explaining the types of evidence and methodologies which policyholders may use when proving the presence of coronavirus in a particular area around their premises.
It is hoped that the FCA’s draft guidance will provide clarity and ensure that the process of proving the presence of coronavirus is made as simple as possible for policyholders. This will help enable policyholders to receive claim payments as early as possible should the Supreme Court uphold the High Court’s decision that relevant policies potentially provide cover in response to the pandemic.
The test case has come about as a large number of disputed insurance claims have been made by SMEs under policies covering business interruption (“BI”) losses, particularly – and relevantly in this action – under extensions or other coverage clauses that do not require property damage, instead being focused entirely on events causing an impact to the insured business.
What is Business Interruption insurance?
Business interruption insurance covers businesses for loss of income during periods when the business cannot trade as usual due to an unexpected event.
The aim of BI insurance is to put a business back in the same trading position it was in before the unexpected event occurred.
Why is the FCA’s BI Insurance test case important?
Policyholders are generally not sophisticated or well-resourced insurance buyers in the way a large corporate would be. It is against that background that the FCA, as Claimant in a claim brought under the Financial Markets Test Case Scheme, thus seeks legal certainty for the benefit of all stakeholders, and to achieve this urgently in the public interest to facilitate the continuation of businesses to the extent they have survived in the meantime or to bring some relief and opportunity for those that have not.
Given the complexity of business interruption claims and the legal uncertainty surrounding their enforcement (the FCA have issued a test case recently in the High Court), it is advisable that you seek expert legal advice early in order to prepare your Business Interruption Insurance claim.
What does the FCA’s draft guidance say?
The FCA consults on draft guidance for policyholders, insurers (including managing agents at Lloyd’s) and insurance intermediaries on how the presence of Covid-19 in a particular area may be proved, based on the High Court’s judgment and declarations and in the context of insurers’ obligations under our rules to handle claims fairly. The FCA also explain types of evidence and methodologies which policyholders may use, together with links to further useful information for policyholders.
When does the draft guidance have effect?
If the FCA proceeds to issue guidance following this consultation, it would potentially come into effect as soon as it is issued and cease to have effect on 31 December 2021.
Who does the FCA’s draft guidance apply to?
The FCA’s draft guidance is for policyholders, insurers (including managing agents at Lloyd’s) and insurance intermediaries.
Download the FCA’s draft guidance on the Business interruption insurance test case- proving the presence of coronavirus (Covid-19)
The High Court Judgment
The High Court ruled in favour of the FCA on most of the key issues, in particular regarding coverage triggers under most disease and ‘hybrid’ clauses, certain denial of access/public authority clauses, as well as causation.
The policies wording share provisions which, in broad terms, provide coverage in respect of business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
In relation to each, there arises the question of whether there is cover in respect of a pandemic where it cannot be said that the key matters which led to business interruption, and in particular the governmental measures, would not have happened even without the occurrence of COVID-19 within the specified radius, as a result of its occurrence or feared occurrence elsewhere.
The FCA’s case is that there was cover. The FCA’s position was that there was a “Notifiable Disease” in all parts of the UK by 6 March 2020. There was interruption of or interference with the business from 16 March 2020 as a result of the government’s instructions and/or announcements as to social distancing, self-isolation, lockdown and restricted travel and activities, or alternatively, in cases where businesses were ordered to close, from 23 March 2020. Any losses as insured were sufficiently causally connected with the interruption or interference and the interruption or interference “followed” the occurrence of COVID-19 if they would not have occurred had there been no COVID-19 outbreak or intervention by the government.
The High Court broadly agreed with the FCA’s submission and concluded that the proximate cause of the business interruption was the “Notifiable Disease” of which the individual outbreaks form indivisible parts.
What does the judgment mean for BI insurance policyholders?
The FCA commented on the judgment, and notably confrimed that policyholders with claims would hear from their insurers within a week:
Although the judgment will bring welcome news for many policyholders, 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 needs to be considered against the detailed judgment to work out what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within the next 7 days.
Is my company entitled to Business Interruption insurance?
Specific advice can only be provided by this firm once we have been instructed to review your insurance coverage and other supporting documents. However, the FCA believe that insurers should be liable for paying out for business interruption claims related to the coronavirus pandemic and the subsequent government lockdown restrictions placed on UK businesses. The High Court in the FCA’s test case now confirm that the majority of the FCA’s submissions on behalf of policyholders have been accepted.
Most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic.
However, for the remainder of policies that could be argued to include cover. There are policies where it is clear that the insurer has an obligation to pay out on a policy. For these policies, it is incumbent on the insurer to assess and settle these claims quickly. Financial pressures on policyholders should not be exacerbated by slow payment, rather, such claims should be paid as soon as possible.
Why instruct a Specialist Business Interruption Insurance Claim Solicitor?
We work to achieve our client’s interests by attempting to negotiate with the insurers wherever proper and commercially sensible to do so. When the time comes to issue legal proceedings we know how best to do so. If a without prejudice settlement approach is unsuccessful we seek on behalf of our client both litigation funding and after the event insurance policies and prepare and issue a claim without delay. Members of our legal team are also insolvency and winding up petition experts so if our clients face winding up proceedings or appointment of receivers as a result of a invalid denial of insurance coverage we can quickly assist and advise in these areas.
Our Business Interruption Insurance Lawyers get the best results
We endeavour to make the process as stress-free as possible for our clients and seek to eliminate the possibility of business or litigation failure. We know that each client’s case and business is unique, therefore we adopt a bespoke approach tailored to suit the client’s circumstances. We provide specialist senior legal advice from solicitors and barristers (including at QC level) at the outset when it absolutely matters in choosing the best strategy to follow. We are regularly instructed by regional solicitors’ firms to give specialist litigation advice and support in litigation cases. We assist by:
- Issuing legal proceedings & drafting documents/pleadings to support the insurance claim;
- Assisting you in preparation of evidence to support your Business Interruption insurance claim case;
- Appointing the right insurance experts to ensure the best chance of success in litigation;
- Appointing forensic accountants to assess and report on the refunds and consequential losses due;
- Liaising with the bank and the Court and/or the Financial Ombudsmen Service;
- Providing first class Court representation and advocacy; and
- Developing (and aiding implementation of) strategies that allow the business to continue.
Instructing our Litigation Lawyers
We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before selecting the appropriate course of action in order to reduce time and expense. Liability for costs is always an issue in litigation and based on our extensive litigation experience we provide our clients with as much strategic, practical as well as carefully considered legal advice in order to ensure minimum risk in respect of costs. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our lawyer’s negotiation skills are first class. If early settlement at advantageous terms is not possible, we are extremely experienced and capable at navigating our clients through the litigation process.
Optimal Legal Results.
Our litigators deliver advanced legal strategies.
We analyse and work out the legal merits of running your case to trial. We calculate and advise on legal risk factors and the litigation rules in England & Wales. We factor in your risk-appetite, costs sensitivity and determination. We plan the best possible result. We deliver strategic legal advice at your first meeting.
Want your case assessed? Just fill out our simple enquiry form; it goes immediately to our litigation team in Middle Temple, London. Or call our London litigation lawyers on ☎ 02071830529 (9-6 GMT, M-F).
LIMITATION ACT 1980 – WARNING
The Limitation Act 1980 sets out strict statutory deadlines within which you must bring litigation claims. Your legal rights will become irreversibly time-barred if you fail to take legal action (or defend a claim on time). Therefore, you should seek specific legal advice about your legal dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.