The English High Court handed down a judgment in the UK Financial Conduct Authority’s test case on business interruption insurance coverage.
The Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues.
The FCA noted in its original announcement its view that most policies in the London market do not cover pandemics. Therefore most insurers will have no obligation to pay out in relation to coronavirus. Many policies, however, contain extensions of cover for a business interruption which does not include damage.
Christopher Woolard, Interim Chief Executive of the FCA, commented:
‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly. And the speed with which it was reached reflects well on all parties.
‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible. And today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.
‘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. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
‘If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.’
The Business Interruption Insurance test case judgement has thrown a lifeline to small businesses. A host of businesses had to close following lockdown and many looked to insurers to cover their losses.
But many insurers disputed the claims. They also argued policies did not mean to cover such unprecedented restrictions.
The Financial Conduct Authority brought this test case which had the potential to affect 370,000 mostly small businesses.
However, the insurers can appeal against the decision. And policyholders should hear from their insurer within seven days.
Hospitality Insurance Group Action (Higa), one of the campaign groups backing the FCA’s case, said
‘Thousands of UK hospitality businesses should now be able to receive pay-outs as a result of the judgement.’
Sonia Campbell, of law firm Mishcon de Reya, which represents Higa, called it “fantastic news”. She further added that we were right to pursue insurers who across the board denied cover for Covid-related losses.
She urged other hospitality businesses to join them to recover payments successfully from insurers in line with the court’s decision.
The Hiscox Action Group, with more than 400 members and also intervened in the case, called Tuesday’s ruling a “landmark”.
Further, Steering committee member Mark Killick said,
“the insurers accept this ruling and start to payout rather than embark on a fruitless appeals process”
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