The UK Supreme Court has today delivered its verdict on the appeals heard in the business interruption insurance test case. The appeals were brought by the FCA, Hiscox Action Group and six of the eight insurers involved in the test case, following the High Court judgment which was handed down in September 2020.
Huw Evans, ABI Director General, says:
“Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues. Today’s judgment represents the final step in the appeal process.
“The insurance industry expects to pay out over £1.8bn in Covid-19 related claims across a range of products, including business interruption policies. Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim. All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.
“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers. We will continue to work together as an industry to ensure customers have the clarity they need when it comes to what they can expect from their business insurance policies.”
Dene Rowe, Partner and Innovation Director at insurance law firm Keoghs says,
“Today’s judgment provides much needed clarity in relation to the policy holders seeking Covid-related pay-outs from their business interruption policies. The focus will invariably turn to the speed of implementing the judgement and, with insurers now facing a potential avalanche of claims from policyholders, it is likely that insurers will require a technology focused approach to ensure the prompt settlement of claims. Failure to respond in an accelerated way will likely risk a major reputational risk to commercial insurance brands.”
FEDERATION OF SMALL BUSINESS COMMENT
Commenting on the Supreme Court’s decision to rule in favour of policyholders in the landmark Financial Conduct Authority (FCA) business interruption insurance test case, Federation of Small Businesses (FSB) National Chair Mike Cherry said:
“Today’s judgement is a big victory. It cements the high court’s decision to grant businesses left on the brink the insurance pay-outs they are rightfully owed. For many, it has been a long and difficult road to get to this stage so this will bring clarity and hope to the thousands of firms which have been left in financial limbo for almost a year.
“While this is good news, and while the law has to follow procedure, it’s disappointing that so many small businesses have had to wait to get the money they desperately need under policies they believed were there to protect them, policies they bought in good faith.
“Businesses deserve to be protected in a timely way, but instead they have been failed by their insurers and are now trying to make up for lost time. Providers must now pay-out quickly, and consider the steps they can take to progress these claims in a swift and seamless manner. Any paperwork required of claimants shouldn’t be onerous or time-consuming.
“Small businesses contribute trillions to the economy. The Financial Conduct Authority (FCA) was right to argue that disease or denial of access clauses within interruption policies should trigger pay-outs in the event of coronavirus-linked disruption. We are hugely grateful for its work in this space.”
SIMMONS AND SIMMONS ANALYSIS
The Supreme Court has handed down judgment in the FCA Business Interruption Test Case. It has held resoundingly in favour of the FCA (on behalf of the policyholders) in relation to all types of clause under consideration – “disease” clauses, “Prevention of Access” clauses and “Hybrid” clauses.
In relation to disease clauses, the Supreme Court agreed with insurers (and disagreed with the 1st instance court) that the insured peril was the individual occurrence of a notifiable disease within the radius specified by the policy, rather than the disease as a whole (provided there was an instance of the disease within the radius). However, via an innovative approach to causation, the Supreme Court has held that the individual occurrence(s) of the disease within the radius caused the policyholder’s Business Interruption losses. Despite accepting that the lockdown would have been imposed even in the absence of any individual occurrence – ie, despite accepting that the individual occurrence did not cause the loss in a “but for” sense – the Supreme Court has held that the causal test which the parties must be taken to have agreed in relation to these disease clauses did not require ‘but for’ causation. Rather, each individual case within the policy radius, in combination with the thousands of cases outside the radius, was a concurrent proximate cause of the loss.
The Supreme Court has also overturned significant gains which the insurers of the Prevention of Access and Hybrid clauses had made at 1st instance – holding that any ‘pre-trigger’ downturn in revenue was not to be used in calculating the losses after the policy was triggered; and stating that the trends clause, in reducing quantum, could only take into account circumstances or trends which had nothing to do with the insured peril or their originating cause, namely the pandemic. Finally, despite the fact that two members of the Supreme Court giving the leading Judgment (Lords Hamblen and Leggatt) had decided the Orient Express case 10 years ago (on which the insurers relied in relation to causation and the operation of the trends clause), the Supreme Court held that that case had been wrongly decided, and overturned it.