Business Interruption Insurance litigation

Final clarity still awaited in Business Interruption Insurance litigation as insurers may yet appeal to the Supreme Court

A test case brought to the High Court earlier this year by the Financial Conduct Authority in support of a number of Policyholder Action Groups representing small and medium-sized businesses, which was intended to establish the extent of cover provided to businesses under 21 different sample Business Interruption Insurance policies in light of the Covid19 crisis could yet be heading to the Supreme Court in a "leapfrog" appeal directly from the High Court's decision.

The High Court ruled that many (though not all) of the 21 sample clauses through their "disease" and "denial of access" provisions for "non-damage" loss DID provide cover - although much turned on the interpretation in detail of the precise wording of the clauses in question, and the particular impacts suffered by insured businesses. The Court also held that the pandemic and the government's response to it were a single cause of loss for the purposes of establishing a claim, which perhaps was helpful to insured businesses who might otherwise have been confronted with a degree of "hair-splitting" from their insurers when claims of this sort were made.

The case had been brought by the FCA on behalf of SME business owners, following concerns that it expressed as far back as April that many Business Interruption policies may not provide cover to businesses affected by the pandemic, the lockdown etc., and that many others contained ambiguities likely to lead to insurers seeking to deny such cover.

A range of arguments were in issue between the FCA and insurers, chiefly centred around questions of causation and the locality or otherwise of outbreaks of Covid19 to the insured business - in very simplified terms the extent to which a loss caused to a business by a national outbreak of disease (or indeed by how the government chooses to respond to that outbreak) can be covered by a policies which, some insurers argued, were only intended to be triggered by localised outbreaks of notifiable diseases more directly affecting the locality of the insured business. The High Court, however, recognised the exceptional nationwide nature of the Covid19 pandemic and the response of government to it.

The interim Chief Executive of the FCA, Christopher Woolard welcomed the High Court's decision which was handed down in September saying;

"Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today's judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful".

"Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps,"

However, it was already clear that the decision would still lead to a range of different outcomes across the spread of businesses affected and their respective insurers, and that although some of the individual insurers whose policies were considered by the Court have indicated that they will not appeal, others have yet to do so, and there remains time for them to seek what is likely to an expedited appeal to the Supreme Court, effectively "leapfrogging" the Court of Appeal.

The High Court's decision however, offered some comfort and assistance to many SME businesses and indeed may already be helpful for those seeking to rely on policies with insurers who have chosen not to appeal the High Court ruling.

SME business owners facing a struggle with their insurer over the availability of cover from their Business Interruption policy as a result of effects of the ongoing pandemic and economic restrictions arising from it should take advice on the precise wording of the relevant policies in light of the detailed ruling given by the High Court.

It is to be hoped that for others, the possibility of further delays to a resolution that would be caused by an appeal to the Supreme Court does not ultimately outlast the business's ability to survive in these uncertain times.

For more information about the implications of Business Interruption Insurance in the context of the pandemic see our earlier article The pandemic gets Insurance Companies running for "cover"

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.