Many will have seen the flurry of reports in recent days following the Supreme Court’s ruling in the ‘FCA test case. Further to our previous article on the issues that were heard at the High Court last year, we consider the key issues for businesses and what happens next.
Firstly, it is worth refreshing the key themes from the Supreme Court’s judgment. Businesses may recall that the FCA originally brought the test case following ddisputes with insurers over the cover that policyholders had under BI insurance, following claims made owing to COVID19. That led to widespread concern about the lack of clarity and certainty under the various BI policies in existence. The FCA therefore brought the test case to urgently seek court clarification on the contractual uncertainty for BI policyholders, as well as insurers.
The FCA was successful at the Supreme Court in arguing that valid claims should not be reduced because the loss claimed would have resulted in any event from the pandemic; that cover may also be available for partial (as well as full) closure of premises, as with mandatory closure orders that were not legally binding. The effect of this judgment is that, while it does not determine the amount of any particular pay-out, it does provide that more BI claims will be covered by insurers, and where they have been previously refused, and it may also mean that a pay-out could be higher than previous.
Policyholders may likely be aware that a particular issue was where a claim must show that the insured event (as defined by the particular policy), caused the loss claimed. The Supreme Court determined that causation could be found even if the insured event occurred alongside other linked events, thereby causing one inevitable result. Therefore, localised cases of COVID19, together with the restrictions, measures and advice of the Government, and the reaction of the public in response to the disease, can all be treated as one connecting cause that results in interruption to a business.
The Supreme Court’s determination also therefore means that businesses with ‘disease’, ‘denial of access’ and ‘hybrid’ clauses in their BI policies may all be entitled to cover for loss caused by the national consequences of COVID19. Clauses which contain “prevention” and “inability to use” have been interpreted by the Supreme Court widely, meaning that businesses with ‘denial of access’ and ‘hybrid’ policies are now more likely to be covered owing to loss related to COVID19.
So, the next steps are that the FCA and insurers will be working together to process claims that the Supreme Court has determined should be paid, and providing policyholders with interim payments wherever possible. The caveat to the judgment however is that each policy must be considered on its specific policy terms and against the judgment, in order to work out what it means for that policy. To that end, insurers should be contacting policyholders in due course, pending declarations from the Supreme Court once the FCA and the insurers have assessed the various policies in existence.
Therefore, it is vital that businesses review their BI cover and policy wording in light of this judgment now. If businesses remain unhappy at the insurers determination, they should seek independent legal advice as to the interpretation of the judgment, in light of their specific policy and circumstances. The FCA will be producing guidance on BI policy types that are relevant to claims for cover, together with demonstrating how to prove the presence of COVID19, which is a condition in some BI policies.
Following the Supreme Court judgment, each BI insurance policy will now need to be reconsidered on its own wording, and businesses should seek clarification from insurers in the first instance. However, given each policy will need to be determined against the judgment and the policy terms itself, businesses should ensure that they are fully aware of the merits of their BI claims owing to COVID19 and should therefore seek independent legal advice.