UK Supreme Court Decision Regarding The Business Interruption Claims Delivered – Success For Policyholders
The moment that the insurance industry has been waiting for since insurers advised that they were refusing to cover claims for Business Interruption as a result of the COVID-19 pandemic is here. The UK Supreme Court has today reached its decision in Financial Conduct Authority v Arch Insurance (UK)Limited and Others appeal.
The ruling will affect around 60 insurers and approximately 370,000 policy holders. The “FCA Test Case” as it is known will be of immediate significance for insurers who will have huge financial obligations to meet in relation to payouts pursuant to business interruption clauses. However, it will also have also have wider implications as the appeal submissions addressed a number of issues in particular in relation to causation and the interpretation of trends clauses which allow for an adjustment to the standard formula in order to take account of any overarching trends in the business.
How did we get here?
In March 2020 the UK Government began to take a series of measures to combat the transmission of COVID-19. These included restricting the movements of citizens and the closure of millions of businesses across the UK. The UK Parliament passed primary and secondary legislation in order to enforce the rules.
On 1 May 2020 the FCA announced its intention to obtain a court declaration to resolve contractual uncertainty in business interruption cover. In short, the insurers were refusing to pay out on foot of the business interruption policies and the FCA, in an unprecedented move, took a case on behalf of policyholders to obtain a court declaration dealing with the matter. The FCA and the insurers agreed to submit policy wordings for consideration with the aim of addressing issues arising from similar policies prevalent in the insurance industry.
The key issue was whether insurance cover was triggered under the policy wordings for business interruption losses due to the COVID-19 pandemic and the government’s response to it. The Divisional Court found in favour of the majority of elements of the policyholders’ claim in its Judgment delivered on 15 September 2020. However certain insurers- Hiscox, RSA, QBE, Argenta, Arch and MS Amlin - appealed a number of elements of the decision so the matter advanced to the Supreme Court.
The main issues submitted to the Supreme Court for determination were broadly as follows:-
The interpretation of “disease clauses” i.e those which can be triggered by the occurrence COVID-19, typically within a specified distance of the insured’s premises
The interpretation of “prevention of access” clauses; those triggered by public authority intervention preventing access to, or use of, premises as a result of COVID-19
The interpretation of “Hybrid Clauses” those clauses which contain wording from both of the above.
The question of what causal link must be shown between business interruption losses and the occurrence of a notifiable disease
Whether the Divisional Court was right to apply certain counterfactual scenarios in relation to the operation of the clauses in relevant policies which provided for loss adjustments
Whether the Divisional Court was correct it its criticism of the Commercial Court decision in Orient-Express Hotels Ltd v Assicurazioni Generali SpA which was viewed as an “insurer-friendly” authority.
What the decision means
The highest court in England and Wales has now rejected the insurers arguments and has substantially upheld the decision of the Divisional Court in favour of the policyholders.
Lord Briggs in his ruling said "On the insurers' case, the cover apparently provided for business interruption caused by the effects of a national pandemic type of notifiable disease was in reality illusory, just when it might have been supposed to have been most needed by policyholders…”
"That outcome seemed to me to be clearly contrary to the spirit and intent of the relevant provisions of the policies in issue."
The Hiscox Action Group, which represents certain policyholders, said insurers should be “in no doubt that they should immediately start doing the right thing and settle these claims”.
The decision is a huge boost for so many business owners who have suffered and continue to suffer as a result of the COVID-19 pandemic. It means that businesses will be able to reopen when the time comes and that the economy can get back on its feet more quickly while people employed in the businesses will have jobs to return to.
What does this mean for the Irish Courts decision on the matter? In our view it is highly unlikely that they will fail to follow suit. This is a glimmer of light at the end of a very long, dark tunnel for so many business owners.
It’s time to follow up on your claim form/s and push hard for immediate payout because with an estimated £1.2 billion obligation to policyholders in the UK it seems possible that certain insurers may lack the means to satisfy their obligations and the same could very well be true in the Irish market.