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FCA’s Business Interruption Insurance test case heading to the Supreme Court

Given the complexity of business interruption claims and the legal uncertainty surrounding their enforcement, it is is essential that you seek expert legal advice early in order to prepare your Business Interruption Insurance claim.

The High Court handed down judgment in the FCA‘s test case of business interruption insurance claims on 15 September 2020. The good news for policyholders is that the Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues. The ruling is a significant step in resolving the uncertainty being faced by policyholders.

The deadline for parties to file a ‘leapfrog’ application to appeal to the Supreme Court any aspects of the High Court’s Judgment was on 28 September 2020, and both the FCA and the insurers have done so. It may be the case that an appeal to the Supreme Court will be the quickest route to get legal clarity as quickly as possible for all parties.

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.

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Why have precautionary applications been filed at the Supreme Court?

The FCA are in discussions with the eight insurers and two intervenors that participated in the test case to reach an agreement in principle on a range of issues which would mean an appeal process would not be required, and payments would be made on eligible claims as soon as possible. The FCA state that “positive discussions continue with all parties.”

Both the FCA’s and the insurer’s ‘leapfrog’ applications have been filed on a precautionary basis in the event that this agreement is not reached.

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.

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.

The Financial Conduct Authority’s statement

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.

Please note: Claims Management Companies are regulated by the Ministry of Justice and are not law firms made up of solicitors and barristers. In these cases, they can only complain to the FOS. They cannot issue legal claims nor represent their clients at Court and may lack expertise in this area. You do not need a CMC to assist you and typically they will simply refer your case to a lawyer for a fee (from the lawyer). We do not accept referrals from CMCs.

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