Update: COVID-19 Business Interruption Insurance Test Case

10 Feb

Following our previous update, we wanted to share the current progress with you on the Financial Conduct Authority (FCA) Business Interruption Test Case.

The High Court and subsequent Supreme Court actions were necessary to resolve widespread contractual uncertainty arising out of Business Interruption claims in relation to COVID-19. Whilst the speed of the legal process through the Courts was unprecedented, we appreciate how any period of waiting for this decision will have been unwelcome.

Since the start of the pandemic and post the Supreme Court ruling, we have been working to support our clients and offer our latest update below.

Supreme Court Judgement

The judgement was complex, and we are now waiting for this to be distilled into a set of declarations, to finalise the legal process. Once declarations have been issued by the Supreme Court, we will robustly push insurers to act in response on those non-damage Business Interruption policy coverage wordings, which potentially now offer indemnity following the judgement.

Once declarations are issued by the Supreme Court, it is expected the FCA, working with insurers, will issue guidance on all other policies which were not directly part of the Test Case, but which could now potentially provide non-damage Business Interruption policy coverage as a result of the Supreme Court judgement.

The delays in publishing are far from ideal and we understand the frustrations for many this is causing. We are prepared to react when declarations are issued, and once the FCA publish a list of potential policies in scope of the judgement.

In Scope Claims

For those policies which will have been directly or indirectly impacted by the Supreme Court’s judgement, if not already in some instances where the ruling is clear or as soon as the declarations issue permits for others, you can expect us to push insurers on your behalf to progress claims as quickly as possible. Prompt action will not however necessarily mean that claims are paid immediately, as each policyholder will need to demonstrate and quantify their lost income, profit, or increased cost of working.

The majority of policies that are expected to respond generally provided cover on smaller inner limits rather than full gross profit.

Where we can, we will push insurers to make rapid “interim” payments whilst their adjustors review each loss to reach fair settlement. The FCA have been clear with insurers that they expect this to happen.

Loss Assessors

For all valid claims, businesses will still need to be able to demonstrate the level of loss suffered as the COVID-19 event does not automatically trigger a claim payment. Insurers will appoint their own loss adjustor and we will manage the claim as normal. However, to expedite further, you may wish to appoint your own specialist loss assessor to assist in analysing your lost income, profit, or increased cost of working and help prepare your claim.

We have been working with a number of specialists and can provide referrals to these should you require. We would not recommend this however until we have confirmed that your policy will respond and any potential limits that may apply.

Interpreting the Ruling

Since the Supreme Court ruling, we have successfully challenged some insurers over claims declinature decisions. We will continue to ensure that all insurers are correctly applying the judgement principles to policy coverage, so that those businesses who are now able to benefit, can.

We are working with a number of legal advisers on the best course of action for you should your policy coverage challenge against insurers need escalation. We will report any insurer who does not comply with the legal ruling.

The Enterprise Act

The 2016 Enterprise Act allows policyholders to claim against their insurer for damages suffered as a result of late payment of claims. The Act requires insurers to pay claims in a “reasonable time”, however this is not defined. It is generally accepted that due to their complexity, Business Interruption claims take longer to settle than others. The decision of the FCA to take the Test Case and subsequent appeal through the Courts are likely to provide insurers with grounds that the delays are reasonable pending the outcome of the case, with policy cover not accepted until conclusion of the appeal.

With that now complete and with the Supreme Court declarations expected to be published along with the FCA list of other policies potentially impacted by the judgement, we will be closely monitoring insurers behaviour and will talk to our customers when we feel a challenge under the Enterprise Act would be reasonable.

Out of Scope Claims

The FCA Test Case argued for a small group of policyholders who had non-damage disease clauses and certain prevention of access clauses. Policy wordings pertaining to physical damage (the majority of policies) were not within the scope of either Test Case. There was no legal argument for the FCA to make with such policy coverage being specific.

The Test Case did also not consider policies that required manifestation of COVID-19 at the insured premises to trigger a claim. Following the Supreme Court judgement, insurers remain of the view that there is generally no cover available under their policy, unless it can be evidenced that COVID-19 manifested at your premises.

Next Steps

Once the Supreme Court issues their declarations, insurers will be given clarity and should progress valid claims with haste, as requested by the FCA. For those with potential non-damage Business Interruption policy coverage, the work to identify and quantify loss will progress. Whilst questions remain on how insurers will behave, we will of course continue to act in your best interest, endeavouring to reach a settlement and payment as promptly as possible.

As soon as the FCA publish the list of insurers policies which could potentially offer policy coverage within the scope of the Test Case, we will be in contact with those clients.

For most, policy cover did not extend to non-damage business interruption losses and the Supreme Court ruling does not open the door for these policies to respond.

If you have any further questions, please do not hesitate to contact us on 02920 853788 or at contact@thomas-carroll.co.uk.