What does the Supreme Court decision in the FCA Test Case mean for you and your policy? Kirsten Thomson, Associate at Addleshaw Goddard explains.
Are you one of the thousands of policyholders who have been eagerly awaiting the outcome of the FCA Business Interruption Insurance Test Case in order to see if your policy will respond to your claim for business interruption losses arising from forced closures as a result of the Covid 19 Pandemic?
The Supreme Court decision brings positive news for many policyholders whose claims have been rejected by insurers.
What does it mean for you?
For many months, insurers have been refusing to provide cover to policyholders who have suffered significant business losses as a result of the Covid-19 pandemic. These decisions have been the subject of court action brought by the Financial Conduct Authority.
While the court action considered various legal arguments, the crux of the dispute was whether the BII policies considered would respond to losses resulting from closures of businesses arising from the Covid-19 pandemic.
The dispute proceeded to a hearing before the Supreme Court who have now determined that where insurance policies contain disease or prevention of access of clauses which provide cover for BI losses arising from closures resulting from Covid 19, the pandemic and the Government’s response to the pandemic is the cause of the business interruption losses thereby triggering the policy.
Disease clauses
A “Disease” clause within a business interruption policy commonly provides that the policyholder is entitled to cover for business interruption losses caused by closure of a property as a result of the “occurrence” of a “notifiable disease” within a specified radius of the insured’s premises (often 25 miles). The Supreme Court determined that in order for disease clauses of this nature to respond, there must have been an “occurrence” of an individual case of Covid-19 within the specified radius.
While on the face of it, this may seem problematic for policyholders, the Supreme Court went on to determine that policyholders do not need to establish that the occurrence of the individual case of Covid-19 resulted in the closure of the property. The Supreme Court held that each individual case of Covid-19 was an equally effective cause of the Government restrictions resulting in the business interruption loss.
This is good news for policyholders who can establish the existence of a single case of Covid-19 in the prescribed radius.
By extension, the decision of the Supreme Court may also assist policyholders whose policies contain a disease clause which requires the occurrence of a notifiable disease “at the insured premises”. Provided that policy holders can demonstrate the presence of Covid-19 within the premises, then there is no reason in principal why the policy would not respond.
Prevention of access clauses
A “prevention of access” clause is generally intended to provide cover for business interruption losses caused by the policyholders’ inability to access or use their business premises.
The Supreme Court required to consider a variety of prevention of access causes, some of which also contained a radius requirement similar to the disease clauses. In short they determined that:
- Clauses requiring that the prevention of access arose from “restrictions imposed” by a public authority did not mean that the restrictions had to be legally binding.
- Restrictions which prevented people from leaving their homes could also qualify as falling within the remit of the clause.
- It was not necessary for the entire premises to be unavailable for the clause to be triggered. However, cover would only be available for losses arising from the part of the business or premises which could not be used.
- Complete cessation of business activities was not required to satisfy the requirement of “business interruption”.
The conclusion reached by the Supreme Court in respect of the interpretation of prevention of access clauses is another favourable outcome for policyholders and will result in more policyholders’ being entitled to recover under their policies.
How much are you entitled to?
The Supreme Court decision does not determine how losses should be quantified. However, one of the key issues for the Supreme Court to consider was how trend clauses in policies should operate.
Where policies contain trend clauses, insurers will consider whether the policyholder’s turnover would have been impacted by other matters unconnected to the insured peril and make an adjustment to the losses to reflect those unconnected matters.
Insurers had been attempting to reduce their liability to indemnify policyholders due to other perils where the underlying cause was also the Covid-19 pandemic.
The Supreme Court determined that where trend clauses apply, the adjustment should only be made to reflect trends unconnected with Covid-19.
This is very significant for policyholders as it will prevent insurers using trend clauses to reduce payments to insurers to reflect other Covid-19 related perils.
Bear in mind
The Test Case considered 21 sample policy wording issued by 8 different insurers. It does not answer all potential disputes which may arise with insurers in relation to BII policies. Further, there will be insurers who will attempt to distinguish their policies from the policies forming the basis of the court action.
Each policy will need to be considered individually taking into account the specific wording of the policy and any relevant exclusions.
What should you be doing now?
If your insurers have previously refused cover under your BII Policy or your claim is sitting in limbo as your insurers awaited the outcome of the FCA Test Case, you should now be contesting the decision of your insurers or pressing forward with your claim.
For a more detailed analysis of the Supreme Court decision visit:
Or if you have any specific questions in relation to your policy contact the Addleshaw Goddard Insurance Disputes Team at
www.addleshawgoddard.com/en/specialisms/dispute-resolution/insurance-policyholder-disputes/
