- “On 15 September 2020 the High Court handed down its Judgment in the test case brought by the FCA seeking clarity on the meaning and effect of several business interruption insurance policy sample clauses (The Financial Conduct Authority (FCA) v Arch Insurance & Ors [2020] EWHC 2448 (Comm). The test case was brought by the FCA with a view to seeking clarity for SMEs (businesses that individually may have struggled to get anywhere with their insurers following losses suffered due to the Covid-19 pandemic).
- In what is hopefully a helpful Judgment for most SMEs the Court found that some of the sample policy clauses considered do, in principle, provide cover for business interruption losses suffered as a result of COVID-19. Crucially in the context of causation and in the scope and application of relevant trend clauses (i.e. clauses that are intended to take into account overarching trends in business – which generally allow insurers to reduce the amounts payable under the policy where other wider factors have influenced its ability to trade) the Court distinguished the decision in Orient Express Hotels Limited v Assicurazioni Generali SPA t/a Generali Global Risk [2010] EWHC 1186 (Comm) and held that the analysis in the Orient Express case did not impact upon the proper construction of the sample clauses considered. The Court, did, however, state that had it been necessary it would have concluded that the decision in Orient Express was wrong.
- Many insurers have attempted to avoid making payments under their policies, however, the Court found in favour of the arguments advanced by the FCA on the majority of the key issues. For example, to establish liability under the policy wordings the FCA argued that the “disease” and/or “denial of access” clauses in the representative samples considered by the Court did provide cover in the circumstances of the COVID-19 pandemic and that the COVID-19 pandemic triggered policy holders’ losses.
- Most but not all of the relevant “disease” clauses provided cover, which under those sample clauses was not limited to losses resulting from local outbreaks of COVID-19. For example, in relation to two of the MSA policies considered, the FCA was successful in arguing that those clauses provided cover for the effects of Covid-19 within and outside of the 25 miles radius specified. The FCA successfully argued that an outbreak in the policy area was an indivisible part of the pandemic as a whole and therefore cover was not limited to the effect of any local occurrence.
- A reference within a policy to within the “vicinity” of the Business was also taken to mean within England and Wales.
- Further, some of the relevant “denial of access” clauses which are intended to cover business interruption losses due to the prevention or hindrance of access to business premises as a consequence of a Government or Local Authority action also provided cover. These clauses, however, were interpreted more narrowly than the disease clauses. Whether cover is available for policy holders will ultimately depend on the specific wording of the policy itself and how the business was affected by the Government response to the pandemic. For example, the effect will be different if a business was subjected to a mandatory closure order: a restaurant which provided both takeout and a sit down service would not be treated in the same way as a restaurant which only provided a sit down service (take out services having remained available throughout the lockdown in England).
- In relation to causation and the interpretation of some trend clauses the Court held that the COVID-19 pandemic and the Government and public response were considered a single cause of the loss.
- The Court did not find that the defendant insurers taking part in the test case were liable across all of the 21 different types of sample policy wordings considered for the purposes of this test case. It was held that each policy must be considered against the Judgment to establish what it means for that particular policy.
- The Judgment is long and complicated and requires detailed consideration but policy holders with affected claims should be contacted by their insurers once they have digested the decision.
- Whilst the FCA test case has removed the need for policy holders to resolve a number of issues individually with their insurers, it is still necessary for each policy to be considered against the Judgment to establish what this means for their individual policy. The Judgement is, however, a significant step in resolving the uncertainty being faced by policy holders at this time.
- Whilst the defendant insurers may appeal the decision, it is hoped that any appeal will be considered quickly in order for policy holders to resolve any disputes with their insurers quickly securing much needed insurance payouts before the consequences of any delay devastates their businesses.
- Unless the Judgment is successfully appealed, it is legally binding not only on the defendant insurers who were a party to it but it also provides persuasive guidance for the interpretation of similar policy wordings for claims across England, Scotland and Northern Ireland, complaints to the Financial Ombudsman Service and for the FCA in considering whether insurers are handling claims fairly.
- If, thus far, an SME has been unable to claim under an insurance policy for losses caused by the COVID-19 pandemic this Judgment may alter that position and further thought should now be given as to whether those businesses can pursue their insurers for losses suffered.
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