In a much-anticipated verdict, the Supreme Court has made its judgement on the Financial Conduct Authority’s (FCA) business interruption (BI) insurance case. And, after delivering their decision in a live stream, the Supreme Court has allowed the FCA’s and the Hiscox Action Group’s (HAG’s) appeal. The outcome is excellent news for BI insurance policyholders because appeals made by six leading insurers have been dismissed. Keep reading and find out more about this landmark case.
What is business interruption (BI) insurance?
Business interruption (BI) insurance is a type of insurance policy designed to replace the loss of earnings that a business may experience due to physical loss or damage.
Interestingly, some BI insurance policies cover the loss of earnings a business may experience due to illness or disease (often referred to as a disease clause).
The scope of what is covered in a BI policy depends entirely on the individual insurance provider, and it’s always vital to read the small print and associated contracts carefully. It’s almost certain that some exclusions will automatically apply and if you’re looking for specific cover, speak to a specialist insurance provider first before committing to a policy.
A background to the case
Many businesses, both small and large, have been significantly impacted by the coronavirus pandemic. Many companies have been forced to shut again because of the third lockdown. As a result, many are losing out on earnings and are struggling to stay afloat.
To help protect their company, thousands of business owners have tried to claim with their BI insurance policy. However, a majority have been unsuccessful because insurance providers have decided that coronavirus does not satisfy the terms and conditions within the individual policies.
The FCA put an argument together to the High Court – representing over 370,000 policy holders with 700 types of BI insurance policies. While the High Court “resolved most of the key issues”, some major topics were not settled. Acting quickly, the FCA made an appeal to the Supreme Court without taking the route of appealing via the Court of Appeal first.
The ruling went in the favour of BI insurance policyholders
The Supreme Court rules in favour of a majority of policyholders – fantastic news for thousands of business owners on the brink of having to close their organisations due to COVID-19. In a press release, the FCA explain the Supreme Courts judgement in more detail, stating:
“The FCA argued for policyholders that the ‘disease’ and ‘prevention of access’ clauses in the representative sample of 21 policy types provide cover in the circumstances of the coronavirus (Covid-19) pandemic, and that the trigger for cover caused policyholders’ losses.
The High Court’s judgment last September said that most of the disease clauses and certain prevention of access clauses (12 policy types from the sample of 21, issued by six insurers) provide cover and that the pandemic and the Government and public response caused the business interruption losses. The six insurers appealed those conclusions for 11 of the policy types, but the Supreme Court has dismissed those appeals, for different reasons from those of the High Court.
On the FCA’s appeal, the Supreme Court ruled that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were not legally binding; that valid claims should not be reduced because the loss would have resulted in any event from the pandemic; and that two additional policy types from insurer QBE provide cover. This will mean that more policyholders will have valid claims and some pay-outs will be higher.”
Now that the ruling has gone in favour of the FCA and the insurance policyholders it’s been representing, the FCA will be working with insurance businesses to ensure they start paying eligible businesses as soon as possible.
Sheldon Mills, the Consumers and Competition Executive Director at the FCA, said on the day of the verdict:
“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.
‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
‘As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.”
Richard Leedham, partner at Mishcon de Reya (legal firm representing Hiscox Action Group) expressed his happiness at the Supreme Court’s verdict, saying:
“The judgment should be a massive boost to all businesses reeling from a third lockdown who can now demand their claims are paid.
“The hope and expectation of our clients is that the claim adjustment process starts immediately and that insurers will not continue to cause further distress by further unnecessary delay.”
The FCA confirm that the ruling of the Supreme Court ” will mean that more policyholders will have valid claims and some pay-outs will be higher.”
There could still be hurdles ahead
The judgement has settled legal arguments under 14 different policies that have been issued by six insurers. And, it’ll result in many additional policies resulting in successful BI insurance claims. However, while the Supreme Court’s ruling will come as excellent news to potentially thousands of BI insurance policyholders, further clarity on a number of issues may still be required. Paul Smethurst, partner at Menzies LLP accountancy firm, said:
“There are still a number of untested issues.
For example, the question of aggregation and whether insurers should accept that the disruption caused by the pandemic is one event or more.”
Limited company contractors
If you are a limited company director who has a BI insurance policy, we recommend contacting your insurance provider at your earliest convenience. Hopefully they will be able to provide you with clarity and the information you need to make a claim – if you are eligible to do so. If you believe you are eligible to claim for a loss of earnings under your BI insurance policy but your insurance provider is being unfairly dismissive, please visit the Financial Conduct Authority’s website for more information.
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