Covid 19 – The Supreme Court clarification gives hope to Insurance Policy Holders
The widespread disruption faced by many businesses as a result of the COVID-19 pandemic and consequential government controls have led to many of those affected by the first national lockdown restrictions making claims for the associated losses under businesses interruption insurance policies. However, it has appeared that some of those claims have been refused by insurers and the reasons given have created a lack of clarity and certainty over the meaning and effect of those policies.
In response to this, the Supreme Court has today, under the Financial Markets Test Case Scheme, delivered its judgement of a case brought by the Financial Conduct Authority ("FCA") on behalf of policyholders whereby it considered a representative sample of standard form business interruption policies in light of agreed and assumed facts in order to provide clarification.
The High Court handed down judgement on the case in September 2020 and resolved most of the key issues, however 2 issues were raised in a fast-tracked appeal to the Supreme Court; (1) the interpretation of 4 types of clauses known as "disease clauses", "prevention of access clauses", "hybrid clauses" and "Trends clauses"; and (2) the issues of causation. With regard to the latter issue, in particular, 6 of the 8 insurer defendants argued that policyholders would have suffered the same or similar business interruption losses even if the insured risk or peril had not occurred, so that the claims fail because it cannot be said that the loss was caused by the insured period and/or because of how the trends clauses require the loss to be quantified.
In its judgement, the court dismissed the insurer's appeals but allowed all 4 of the FCA's (2 on a qualified basis). Whilst the judgment itself spans 112 pages, key elements are that the court ruled partial "interruption" to a business may be covered under a claim, as opposed to just full; that a restriction must not always be required to have the force of law before it can fall within the description of such; and that certain, valid claims should not be reduced on the basis that the turnover of a business would have been reduced anyway due to other consequences of national measures taken in response to COVID-19. For example, the court stated how it would not be consistent with the intended scope of the cover if a restaurant having to close due to 21 and 26 March Regulations, thereby having their turnover reduced to nil, had their claim rejected on the basis that the turnover would have been reduced anyway because of other consequences of national measures taken in response to COVID-19, such as the prohibition on leaving home without reasonable excuse.
In summary, the courts decision will bring positive news for many (especially for small and medium size enterprises, which have been hardest hit and often have policies which only cover property damage). Whilst the High Court's judgement last year concluded that policyholders would be covered under the majority of the disease clauses and certain prevention of access clauses and that the Government and public response caused the business interruption losses, the Supreme Court's ruling means more COVID-19 related claims will be approved.
Although the ruling was only based on 14 types of policy issued by 6 insurers and will not address every dispute or determine how much a business will be able to recover under a policy, the test case has previously been estimated to affect in the region of 8,500 claims and 3,700 policy holders so it has provided the urgent clarification and greater certainty needed.
George Coyle and Enisha Ali
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.