Update on Business Interruption Insurance test case

The FCA’s test case on the limits of Business Interruption Insurance will have significant impact on insurers and policyholders. The FCA has filed its reply and skeleton arguments and the 8 day hearing at the High Court has commenced.

The FCA’s test case is likely to be the quickest route to clarity on whether losses caused by Covid-19 are covered by Business Interruption insurance. 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. This case is focused on the remainder of policies that could be argued to include cover.

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.

What has happened in the FCA test case so far?

On 10 June 2020, the FCA filed its Claim Form and Particulars of Claim. The First Case Management Conference took place on 16 June 2020. The Insurer’s Defences were published on 24 June 2020.

At the Case Management Conference the court allowed intervening claims by certain other policyholder representatives (the Hiscox Action Group and the Hospitality Insurance Group) so that they may be heard at trial on the issues that relate to their policy wordings.

The trial of the claim has commenced and is taking place across eight days from 20 July, and is being heard by Lord Justice Flaux and Mr Justice Butcher.

The Insurers’ Defences

The gist of the Defences is that ultimately the Insurers plead that the pandemic and the government’s reaction to it do not trigger policy coverage. They argue that the pandemic is a national issue which should not be covered by Business Interruption Insurance (and not a local issue which must be covered by policies).

In addition, although the government imposed restrictions on businesses, some businesses could still stay open and operate (for example restaurants with takeaway services).

The FCA’s Reply

The Reply rejects the Insurers’ Defences. In short, they depend upon adopting unduly restrictive meanings of particular words (such as ‘prevention’ and ‘occurrence’) and approaches to proof as to the presence of COVID-19, and causal tests prescribing unrealistic, impractical counterfactuals, depriving the cover clause of much of its apparent and intended scope, none of which reflect what the reasonable person in the position of the parties would understand.

Furthermore, the Reply argues that the Defences fail properly or at all to take account of the relevant matrix and the true nature of the insurance provided, including but not limited to:

• the insureds are generally very small businesses or SMEs, many within the jurisdiction of the FOS;
• the insureds are generally unsophisticated purchasers of insurance;
• the policies provide generally low, or very low, limits of indemnity for the business interruption cover;
• the policies are meant to be (either because of their stated terms and/or their nature) readily comprehensible to these purchasers of the insurance; and
• the policies were generally purchased “off the shelf” in standard form written by insurers, whether through brokers or not.

Download the FCA’s Reply

Is my business 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.

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 use 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.

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.