On 15 September 2020, the High Court handed down judgment in a test case brought by the FCA, ruling that some insurance providers must reimburse businesses for losses caused by the Covid-19 lockdown where cover had previously been denied. The Court looked at 21 different business interruption policies offered by 8 insurance providers(1). The FCA asked the Court to clarify the effect of the policies’ wording and address issues of causation. The test case did not address how much an insurer would need to pay out under the policies.
Decision
Despite the defendant insurers’ previous denials of liability, the Court found that, of the 21 policies it reviewed, some policies did provide cover for losses caused by the lockdown. While the judgment is only binding on those specific policies it reviewed, it shall also form important guidance for BI Insurance providers more generally on the effect of their policy wording.
For example, some insurance providers had previously denied cover stating that their policy wording effectively excluded the national lockdown with reference to a requirement that the disease occur locally to the business. In some cases, the Court disagreed and found that, upon a proper interpretation of the policy wording, cover was actually in place in the context of the national Covid-19 restrictions.
The full judgment can be found here.
Review of Policies
The Court divided the policy wording into three categories:
- ‘Disease Clauses’ described as “provisions which, in broad terms, provide coverage in respect of business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises”
- ‘Hybrid Clauses’ described as “policy terms which refer both to restrictions imposed on the premises and to the occurrence or manifestation of a notifiable disease”
- ‘Prevention of Access and similar’ described as wording which provides cover “where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or local authority action or restriction”
Impact on Insured Businesses
The lockdown restrictions have had a significant impact on businesses across the UK, this impact has been compounded for those whose insurers have not paid out. Following the Court’s ruling, businesses who have had their insurance claims denied should review their policy documents to see if the Court’s decision impacts on their insurer’s previous refusal. As a helpful point of reference, the FCA has previously published a list of BI Insurance policies which may be affected by the outcome of the test case. The list can be found here.
Whether an insurer is liable will ultimately come down to how the individual policy is worded. It is therefore important that businesses carefully consider their policy wording against the new guidance.
If you require any further assistance please do not hesitate to get in touch with a member of the team.
(1) Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office PLC, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE Limited, Royal & Sun Alliance Insurance PLC and Zurich Insurance PLC
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