Business Interruption Insurance – policy holders win landmark test case in the UK

Business Interruption Insurance has been subject to scrutiny since the onset of the Covid-19 pandemic.

Business owners across Ireland, and indeed globally, have expressed dissatisfaction with many insurers’ responses to Covid-19-related claims.

In July, we reported that the Financial Conduct Authority (FCA) in the UK, were running a test case whereby they will seek judgment from the courts surrounding the ambiguity of business interruption insurance policies. You can read the full piece here.

Background

In May 2020, the FCA announced they were bringing a test case in the High Court of England and Wales. Its intention, to seek clarity regarding the meaning and effect of the wording of certain business interruption insurance policies, particularly in the context of Covid-19 business interruption claims, and the consequences arising out of the advice and restrictions imposed by the UK government.

The FCA said they were looking for a “timely, transparent and authoritative judgement”

Proceedings were issued in the UK High Court of First Instance, in June 2020, FCA v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm), the case was heard in July and judgement was laid down on the 15^th of September by Lord Justice Flaux and Mr Justice Butcher

The Hearing

The hearing in July lasted for eight days and consisted of the following defendants:

1. Arch Insurance (UK) Ltd.
2. Argenta Syndicate Management Ltd.
3. Ecclesiastical Insurance Office Plc.
4. MS Amlin Underwriting Ltd.
5. Hiscox Insurance Company Ltd.
6. QBE UK Ltd.
7. Royal & Sun Alliance Insurance Plc.
8. Zurich Insurance Plc.

All insurance companies mentioned above agreed to participate in the test case.

Submissions in the test case were also made by the following parties:

1. FCA
2. Hiscox Action Group
3. Hospitality Insurance Group Action.

As part of the case, 21 lead policies issued by the above-named insurers, were considered by the Court and focused on the following;

• construction of the selected lead policy wordings, to determine issues of principle regarding whether they were likely to respond to the losses caused by business interruption caused by the COVID-19 pandemic, and
• a wide variety of issues on causation and trends clauses arising across all of the policies.

The Court also looked at the following wordings contained within the policies;

• The Disease Wordings (provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.);
• The Prevention of Access / Public Authority Wordings (provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.) and;
• Hybrid Wordings (provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease).

The Judgment

On the 15^th of September 2020, Lord Justice Flaux and Mr Justice Baker laid down judgement in the case. Their detailed judgment was in substantial favour of the FCA, however, the judgment did not expressly say the above-mentioned defendant insurers were liable across all the 21 different types of policy wording. Any given policy would have to be compared in the context of the detailed judgement. It was found however that pay outs from insurance companies to affected policy holders could be triggered by claims in connection to “non-damage” clauses covering disease and denial of access to the business premises.

The Aftermath

Commenting on the judgment, Christopher Woolard, FCA Interim Chief Executive, describes it as a “significant step in resolving the uncertainty being faced by policyholders”.

The FCA estimates that, in addition to the particular 21 policies involved in the test case, some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.

While there is a possibility of an appeal the idea of a leap frog appeal has been discussed whereby the appellants would bring their appeal straight to the Supreme Court (leapfrogging the Court of Appeal) in order to expedite the appeal process given the urgency for so many affected businesses.

Of course, the UK judgement is not legally binding in Ireland and the Central Bank of Ireland published the Business Interruption Supervisory Framework, on the 5^th of August. You can view the framework in full here.

Irish Insurance companies and policyholders will still, no doubt, monitor developments in this case with similar litigation pending against FBD Insurance here in Ireland.

About the author: Cìaran Leavy, Partner and Head of litigation