Summary of Judgment
The High Court has found largely in favour of insurance policyholders in the Financial Conduct Authority’s (FCA) ‘s Business Interruption Insurance test case, which was heard in July 2020.
Since the Government’s announcement of Covid-19 emergency measures on 23 March 2020, many business owners were forced to close their businesses, and as a consequence, a flood of financial loss claims followed under their Business Interruption insurance policies (“BI”) Unfortunately, many of these claims were to be rejected by their insurers, despite the policy holders believing that they had valid claims.
On reviewing the insurers’ responses and the policy wording relied upon to avoid such BI claims, genuine doubts began to arise over the appropriate interpretation of that wording.
This widespread concern about the lack of clarity and certainty for policyholders saw the FCA becoming involved. The FCA decided to bring a Test Case in the High Court to seek a declaration to try and resolve the contractual uncertainty around the validity of many BI claims.
Test Case: The Financial Conduct Authority -v- MS Amlin Underwriting Limited & Others
The Test case was heard before Lord Justice Flaux, sitting in the High Court over 8 days in July 2020 and considered a sample of 21 BI policies from the following 8 insurers, who had agreed to be part of the test case:
- Arch Insurance (UK) Ltd
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- MS Amlin Underwriting Ltd
- Hiscox Insurance Company Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
- Zurich Insurance Plc
Submissions were made by the FCA, the intervenors’ Hospitality Insurance Group Action and the Hiscox Action Group.
Judgment was handed down on 15 September. In brief, the judgment states that:
- Most – but not all – of the disease clauses in the sample of BI policies considered provide cover.
- Certain denial of access clauses in the sample of policies provide cover. However, this will depend on:
- the detailed wording of the clause;
- how the business was affected by the Government’s response to the pandemic eg: whether the business was subject to a mandatory closure order;
- whether the business was ordered to close completely.
- The Covid-19 pandemic and the Government and public response were a single cause of the insured loss, which is a key requirement for claims to be paid.
What the judgment means for policyholders
- Although the judgment is welcome news for many policyholders, it did not decide that the 8 defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court.
- For policyholders, this means that the wording for each policy will need to be considered carefully against the detailed judgment to establish what impact it has for that policy.
- It is expected that policyholders with affected claims will hear from their insurer within 7 days.
- The judgement has removed the need for policyholders to resolve a number of the key issues individually with their insurers.
It should be noted that the test case was not intended to encompass all possible disputes but focus on resolving selected key contractual uncertainties and ‘causation’ issues in order to provide clarity for both policyholders and insurers.
Finally, the judgment does not determine the quantification of any claims under individual BI policies, but will provide much of the basis for doing so.
Given the importance of this case, the decision is widely expected to be appealed by the insurers. Any appeal will not prevent policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.
The expectation following the final resolution of the test case, including any appeals, is that:
- Insurers should apply the judgment in re-assessing all outstanding or rejected claims and complaints which may be affected by the test case. This does not include complaints that have been referred to the Financial Ombudsman Service.
- The result is legally binding on the 8 insurers involved in the test case in respect only of the interpretation of the representative sample of policy wordings considered by the Court.
- The result provides persuasive guidance for the interpretation of similar policy wordings and claims.
If you have a claim against your insurer under a business interruption insurance policy as a result of Covid-19 or need assistance in quantifying any losses, then please contact Michael Mulcare in our litigation team.