Covid-19: FCA wins landmark business interruption insurance case

First published on 22 September 2020 by Alastair
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The Covid crisis has created a new landscape for businesses across the UK.  We have got used to a range of new acronyms, from CJRS to SEISS and BBL to CBILS (to say nothing of CLBILS).  Now, all small businesses may want to pay attention to BI (Business Interruption) insurance policies.

This is because hundreds of thousands of business owners who were denied claims under BI insurance policies for losses arising from the pandemic are now going to receive pay-outs after the Financial Conduct Authority (FCA) won a test case against insurers in the High Court

Businesses affected by Covid-19 which made claims on their insurance discovered that their insurers disputed liability. This was particularly so when the claims focused on clauses covering infectious or notifiable diseases, and non-damage denial of access and public authority closures or restrictions (known as ‘denial of access clauses’).

The FCA’s test case was aimed at clarifying key issues of contractual uncertainty for as many policyholders and insurers as possible, thus removing the need for businesses to resolve a number of the key issues individually with their insurers.  The FCA believe there are  700 types of policies spread across 60 different insurers and 370,000 policyholders that are likely to be affected by the outcome of this test case, although they cautioned that while the judgment will bring welcome news for many policyholders, it’s not yet clear if the defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court.
Moreover, the court’s judgment does not determine how much is payable under individual policies, but will provide much of the basis for doing so.

This is a complex area and while it’s possible that the judgment will be appealed, any appeal does not stop policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.

That said, the general consensus is that this is a partial, not a total, victory as it still leaves many with uncertainty whether they will receive pay-outs for policies that have cost them thousands. Rafi Saville, forensic partner at accountancy firm HW Fisher, warned that it is now crucial for businesses to pay attention to the wording of any policies, while Steven Skiba, legal director and commercial disputes specialist at law firm Shakespeare Martineau, pointed out that as well as giving guidance on how to interpret the wording of policies, the test case means both insurers and policyholders now have clarity that government-mandated measures such as lockdown count as a cause for business interruption.

Essentially, the advice from the experts is to look at where the business would have been had the pandemic not happened. It’s very important to seek expert help in gathering together the right supporting evidence for aspects such as lost revenues, forecasted revenues and any expenses incurred. For example, as well as considering any obvious loss of profits based on a comparison with normal trading activity, businesses should consider any contracts that were lost, or failed to convert, due to the lockdown restrictions. In addition, any enquiries received that firms were unable to fulfil, or respond to within the required timeframe may have led to further projected losses and these should also be taken into account. With the expectation of more lockdowns in the next six months, probably nationally as well as locally, it is extremely important for firms to keep detailed records of their commercial dealings in a format that will make it easier for them to bring a future claim.

Julie Downie, Accounts Manager

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