High Court decision on business interruption claims for Covid related losses

The High Court has now handed down judgment in the eagerly awaited test case brought by the Financial Conduct Authority (‘FCA’) against 8 insurers to determine whether policyholders can make business interruption (BI) claims for losses arising from disruption and closure of their businesses caused by Covid-19. 

In a highly significant judgment, the Court found in favour of the policyholders on the majority of the claims, which involved consideration by the Court of 21 sample policy wordings. 

The ruling lends a major victory to policyholders and the thousands of businesses across the country who saw their trading interrupted by Covid-19.  The FCA has said that “Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.”  It remains to be seen what approach is now adopted by insurers.

In an unprecedented step, the recent claim was brought by the FCA on behalf of policyholders who were denied cover under their BI policies for losses resulting from the disruption caused by Covid-19. 

The insurers who are involved in the FCA test case were:

• Arch Insurance (UK) Ltd.
• Argenta Syndicate Management Ltd.
• Ecclesiastical Insurance Office Plc.
• Hiscox Insurance Company Ltd.
• MS Amlin Underwriting Ltd.
• QBE UK Ltd.
• Royal & Sun Alliance Insurance Plc.
• Zurich Insurance Plc.

The High Court judgment handed down yesterday will be legally binding on those insurers subject to any appeal.  It will also provide persuasive guidance for the interpretation of similar BI policy wordings.

It will, however, take some time for the insurance industry and affected policyholders to digest the complex and lengthy judgment which runs to a total of 162 pages. Nevertheless, it is clear that insurance pay-outs are triggered under certain “no damage” clauses that cover disease and/or denial of access to business premises and that any such pay-outs should put businesses in the position that they would have been in had Covid-19 not occurred.

What does this mean in practice?

As the Court looked at a representative sample of policies, each policy needs to be viewed in the light of the judgment to determine whether the insured is covered.  If cover is accepted in principle, the insured will also have to establish what is payable.

The parties have agreed that they will seek to have any appeal heard on an expedited basis and this includes the possibility of any appeal being ‘leapfrogged’ to the Supreme Court. This could take matters into the new year but the FCA have said that this should not preclude policyholders seeking to settle before the outcome of any appeal is known. 

If your business has a BI policy, and in the light of the FCA judgment, you should prudently consider the following questions:

• Are there any terms in your insurance policy which could provide business interruption cover?
• If so, has a claim for business interruption losses as a consequence of Covid-19 been notified under the policy?
• If so, has cover been refused and on what basis?
• Finally, if cover has been confirmed are there now issues and disputes about the quantum of your claim?

TLT are currently advising clients on these issues. If you would like advice in relation to any of the above, please contact Craig Thompson or Julien Luke, partners in our Commercial Dispute Resolution team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.