- The FCA’s High Court Decision: what does it mean for Business Insurance Claims?
The FCA’s High Court Decision: what does it mean for Business Insurance Claims?
The FCA’s High Court Decision: what does it mean for Business Insurance Claims?24th September 2020 - Published by
Business Insurance Claims
The COVID-19 pandemic has devastated large parts of the economy and, in particular, the retail, hospitality and tourism sectors. On 20 March 2020, the Prime Minister told cafes, pubs, bars and restaurants to close their premises and their trade was significantly interrupted until 4 July 2020, when the Government’s restrictions were eventually eased. Whilst three months have passed, many businesses remain in limbo and face a turbulent period of financial uncertainty.
Many companies turned to their insurance policies to cover their financial losses and made claims on their business interruption insurance policies. Some of these policies appeared to provide wide cover, which included protection against business closures arising from any notifiable disease. This is relevant because COVID-19 became a notifiable disease on 5 March 2020.
A number of insurers responded by rejecting cover which left an overall lack of clarity surrounding the prospects of success for these types of claims. To assist businesses in this uphill battle, the Financial Conduct Authority (“FCA”) commenced a test case at the start of June against eight insurers who agreed to participate and asked the courts to make declarations in respect of 21 different policy wordings.
The Test Case
On 15 September 2020, the High Court delivered its judgement, essentially finding that some, but not all, of the clauses would provide cover for policyholders and that the policy wording would need to be assessed on a case-by-case basis to determine liability.
In the test case, the policy wording was split into two main categories:
- “Disease” clauses that provide cover, following, or arising from, the occurrence or manifestation of a notifiable disease within the vicinity (or a specified radius) of the insured premises; and
- “Prevention of Access” clauses that provide cover for a prevention or denial of access to or use of the insured premises as a consequence of action by the authorities.
The FCA was largely successful, with the High Court concluding that most, albeit not all, of the disease clauses in the samples provided cover for policyholders. The insurers had attempted to argue that the policies only covered local occurrences of disease. However, the High Court sided with the FCA who argued that COVID-19 was of such a nature that any occurrence in England and Wales would reasonably be expected to have an impact on the insured and their businesses and were thus deemed within the relevant vicinity for the purposes of the policy.
This line of argument was not universally upheld in respect of all variations and whilst it will prove a helpful decision for some businesses, each policy would still need to be read individually to assess liability.
Prevention of Access clauses
In respect of these clauses, the insurers were largely successful on the basis that the prevention of access provisions were construed restrictively. The High Court found that careful analysis of the Government’s advice and regulations was required in relation to the particular business affected.
Insurers are likely to argue, potentially with some merit, that a mere interference or hindrance of access will not be sufficient to show prevention of access. For example, only being unable to use ‘part’ of the premises or being able to use the premises for a different purpose would not amount to an inability to use the premises.
The judgement should bring welcome news to the estimated 370,000 policyholders affected, although this is unlikely to be the end of the matter with it being anticipated that the case will be appealed straight to the Supreme Court for final judgement.
The FCA has suggested that all insurers should contact their policyholders within the next seven days. In the meantime, we urge businesses to ensure that they notify their insurers of any claims as there are often strict time limits in the policy wording.
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To have your insurance claim reviewed, please contact Philip Warburton on 0161 838 7807 or email firstname.lastname@example.org.