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Supreme Court rejects insurers’ appeal in historic FCA Covid-19 Business Interruption Test Case

The Supreme Court has today unlocked insurance claims for struggling businesses shutdown by the pandemic following a landmark legal battle.

How did the case unfold?

In September 2020, the Financial Conduct Authority (FCA) brought a test case over the wording of insurance policies as business owners sought payouts for loss of earnings caused by the Covid-19 pandemic. The case examined the wording of a sample of 21 non-damage business interruption policies, written by 8 insurers.

The verdict ruled in favour of the FCA and policyholders for most of the sample wordings considered and concluded that the policy wordings selected from Zurich and Ecclesiastical Insurance policies did not provide cover for Covid-19.  You can read about the case in full here.

However, today The Supreme Court dismissed the insurer’s appeals –  ruling in favour of policyholders and the City regulator.

So what does today’s result mean for businesses?

origami question

At last, businesses that have been unable to trade or have lost money due to disruption caused by the COVID-19 pandemic, know where they stand with respect to their business interruption insurance.

Most of those that have been waiting for a resolution of their existing claims will now receive the compensation they are due. However, many will still need to study the small print of their policies to check what the Court’s decision means for them – only sample wordings were considered and underwriters may seek to distinguish their particular policy terms albeit a clear message has been sent to the insurance community regarding liability for claims.

While both the appeal hearing and the original case have been expedited, it is still possible that some businesses will have failed before finding out that their claim will be paid. In these circumstances any claim and the money resulting from a payout will be for the benefit of the insolvent estate and used to pay back creditors. 

With another national lockdown now in place, there is potential for more business interruption claims to be made in the weeks and months ahead. However, businesses should seek legal advice regarding the wording of their policy before bringing a claim. They should also aim to provide the right package of support information, including evidence of forced closure or inability to trade, along with evidence of contracts that failed to convert and estimated trading losses.

The fallout from this case will be both positive and negative for businesses. Premiums will increase as insurers seek to recoup some of their losses perhaps with the requirement to buy separate pandemic or disease coverage and policy wording will certainly be tightened – particularly in clauses related to the circumstances of business interruption claims. On a positive note, consumers can also be assured of a more proactive and protective regulator going forward, with the FCA having demonstrated that it is ready to intervene on their behalf where there is a matter of public interest and insurers appreciating the overarching requirement for clarity in policy wordings.

While today’s Supreme Court ruling provides clarity for many claimants, it is unlikely to provide a clear-cut resolution for all. There are still a number of un-tested issues, which could give rise to further litigation. For example, the question of aggregation and whether insurers should accept that the disruption caused by the pandemic is one event or more.

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