Did you catch our last dazzling article about the Financial Conduct Authority's Business Interruption Insurance test case? (Okay, it may sound a bit dull, but a lot is riding on the outcome).

The case was brought against eight insurance companies and reviewed the policy wording of 17 sample policies, which were specifically chosen for their wide application within the marketplace.

The trial came to a close on 31 July, leaving insurers and policyholders with closely-bitten nails as they await the verdict. The decision of the High Court is expected in September. Read on for our thoughts on the arguments raised during the trial and what will happen beyond the keenly-awaited judgment.

What is riding on this case?

The stakes are exceptionally high for all parties. For policyholders, the decision could be vital to their business survival, as many have their livelihoods on the line as a result of Covid-19. If their business interruption cover pays out, this is likely to throw them a much-needed lifeline. The FCA brought the case to protect consumer interests and ensure that small businesses are not marginalised by insurers' refusals of claims.

For insurers, the cost of paying out would be (wait for it) unprecedented, with a staggering impact on the insurance market. Back in April 2020, the Association of Business Insurance estimated that the cost of claims could amount to around £900 million. As the pandemic continues to be felt by us all, the figure is bound to increase. Hiscox has reportedly increased its Covid reserving in the face of its largest insured loss in history. This news report follows the FCA test case hearing in which Hiscox was a defendant.  

What were the arguments?

The FCA 's arguments: 

1) The pandemic and the UK Government's associated restrictions should be treated as a single insured event. All business interruption losses should be covered by the policies.

2) The UK Government's wide ranging statistics should be permitted to evidence the presence of Covid-19 within a relevant radius of the insured's premises ("the business area").  

3) Insurers should not have automatically denied the claims because of causation problems. Consideration needs to be given to the full facts and circumstances before claims are declined.

In contrast, the insurers' defence was on causation of loss:

1) Strict interpretation of the policy requires a confirmed case in the business area (this is a difficult threshold for businesses to overcome).

2) Covid-19 must have directly caused the loss. Nothing short of evidence of an outbreak would be sufficient as evidence of a business closure.

3) Limited use of premises was still use. Businesses were not denied from accessing their premises. 

What happens next?

For now, it is a waiting game until the judgment is handed down in mid-September (earliest). Even so, the decision will be far from the final whistle. Whatever the outcome, with the stakes so high for all involved, there will almost certainly be appeals. Until we have a verdict from the Supreme Court, there will be no legal certainty on these issues. The ongoing litigation will likely continue over the next year and beyond, depending on how quickly the appeals take place. According to the FCA, the parties to the test case have agreed that they will seek to have any appeal heard on an expedited basis, including a potential leap-frog appeal to the Supreme Court.

We already know that interested parties in this case, such as the Hiscox Action Group, intend to bring legal proceedings of their own regardless of the outcome in this case. It will only be a matter of time before other groups follow. Remember, this is the situation before individual claims against insurers have commenced. If the FCA succeeds, insurers can expect an influx of claims to enforce policies they had initially declined cover for.  

Eager to know more?

The hearing was available to live stream from the Court and accessible to the public by video link each day. If you would like to catch up on the proceedings, Insurance Times provided daily updates, including detailed time stamped summaries of each day’s submissions - visit this link. The FCA also published copies of all key documents filed with the Court by both itself and the defendants, which remain available to download from its website, here.

What can you do now?

This is by no means a time to sit tight and wait. We strongly urge policyholders to submit their claims and do so without delay. This is important as the terms of an insurance policy are likely to require a policyholder to notify its claim, so any delay in doing so could cause a problem. For more information see our last article.

Once the claim has been submitted, you can continue to compile proof in support of your claim. Start gathering evidence that details your financial losses. If you're a bit lost at sea or preoccupied with other key work, we can support you with reviewing policies and submitting claims. If, once you have submitted your claim, you experience difficulties with your insurer, you can contact us to assist with resolving your dispute.

david.martin@carbonlawpartners.com

shauna.roberts@carbonlawpartners.com

Co-authored by David Martin and Shauna Roberts