The UK Supreme court has handed down its long-awaited judgement in the Financial Conduct Authority’s Business Interruption Test Case. If you think you have Business Interruption Insurance and haven’t already claimed, now is the time to check!
In the summer of 2020, the Financial Conduct Authority’s (FCA) brought the Business Interruption Test Case (Test Case) in the High Court on behalf of policyholders, to resolve some important uncertainties regarding whether existing Business Interruption (BI) Insurance policies covered Covid 19 which caused unprecedented issues. In general, the High Court ruled in favour of policyholders. However, insurers were granted an expedited ‘leapfrog appeal’ to the Supreme Court meaning that the issues were so important, the Court of Appeal could be missed out and the matter could be heard by the highest court in the UK.
The Supreme Court Judgement
The Supreme Court handed down its Judgement on 15 January 2021. The Judgement is binding on all parties to the test case and is useful guidance for those holding policies with similar wordings.
With regard to coverage under the disease clauses, the Supreme Court took a stricter view of the wording and policy triggers than that of the High Court. On appeal, the Supreme Court broke the clauses down into two elements and considered first what constituted ‘notifiable disease’ and second, the cover provided in respect of the ‘notifiable disease’. A notifiable disease is not actually defined as the disease itself and the definition differed to a material extent across the policies. Some defined ‘notifiable disease as “illness sustained by any person resulting from …. (ii) any human infection or contagious disease .. an outbreak of which the competent local authority has stipulated shall be notified to them”
The Supreme Court held that in these instances, there doesn’t need to have been diagnoses or the manifestation of symptoms. It is sufficient to have simply contracted the disease. Other policies stipulated that the disease must have “manifested” which required a person to have displayed symptoms or to have been diagnosed.
From there the court had to consider what was covered – the Insured Peril. The Supreme Court looked at the particular words included within the clause and in particular focussed on the definition of ‘occurrence’, interpreting it as something that happens at a particular time and in a particular way. On that basis, the Supreme Court felt that the correct interpretation was business interruption which is caused by a case or cases of Covid-19 that occur within the specified area. It does not, as the High Court has previously found, cover interruption which is caused by cases of Covid-19 that occur outside the specified area.
Conversely, the Supreme Court found that the relevant prevention of access/public authority closure and hybrid clauses had been interpreted by the High Court too narrowly. It did not rule on specific restrictions but directed that Business Interruption insurance will be triggered in instances where businesses were shut in line with legal requirements set out in clear and mandatory terms and/or in line with guidance/instructions issued by the Government. The Supreme Court also confirmed that losing access to only part of a business or premises would be sufficient to trigger cover.
Most importantly for BI insurance policyholders is the Supreme Court’s decision on causation and trends clauses. In terms of quantifying the loss and applying trends clauses, the Judges ruled that the calculation of loss should be determined by reference to what the business would have generated in normal times. It should not be an adjustment figure that takes into account the effects of the pandemic itself, including any decrease in business flowing from the pandemic, prior to the business being closed.
Insurers are now obliged to review all claims in light of the Judgement and all policyholders previously in contact with their Insurers should expect further communication. In theory, that means that if you have made a claim and have been rejected previously, your insurer should contact you. Claims won’t be settled overnight but any policyholder who believes they are affected by this decision and haven’t received an update within a reasonable period of time should contact their broker or Insurers for more information.
For any business which thinks they may have Business Interruption Insurance and hasn’t already claimed, now is the time to check.
Ultimately, the effect, success and quantification of any claim or negotiation in respect of BI insurance will turn of the specific wording of each policy.
However, the Supreme Court’s wider interpretation of BI insurance policy wording will undoubtedly provide many small business owners with a lifeline in the challenging times brought about by the Coronavirus pandemic.
Posted on February 22, 2021