The Supreme Court, on 15th January 2021, handed down judgment in the COVID-19 business interruption insurance test case. The result of this judgment is favourable towards policyholders, meaning that small businesses are now more likely to be successful in making claims on their insurance policies.
This is great news to business owners who have suffered colossal financial losses and are on the brink of closing for good.
Due to COVID-19 and the subsequent government guidance, many businesses have had no choice but to close and cease trading; resulting in loss of earnings and causing substantial financial losses to many businesses.
Some businesses attempted to make claims on their insurance policies, however, many insurance policies have refused to pay out, arguing that only specialist insurance policies had cover for losses caused by the unprecedented coronavirus pandemic.
Of course, many insurance policies did not include specialist clauses. After all, who could have foreseen the coronavirus and its impact on the world? In fact, some insurance policies did include clauses covering losses from infectious diseases and prevention of access and public authority closures and restrictions. Even in those cases, insurers disputed their liability, arguing that the policies do not apply in the current circumstances of the coronavirus pandemic and in any event that they do not have the finances to cover all losses caused by the pandemic.
Subsequently, the Financial Conduct Authority (FCA) brought the test case to the court. Their aim was to clarify the issues surrounding the insurance clauses. The FCA selected an example of 21 different policies used by 8 insurers and tried to put forward the policyholders’ arguments to the court’s attention.
In September of last year, the High Court made some decisions in relation to most of the issues, however, some of the problems remained. As such, both the FCA and the insurers made appeals to the Supreme Court to have those issues resolved.
To the policyholders’ advantage, the Supreme Court dismissed the insurers’ appeals, but allowed all four of the FCA’s appeals.
Importantly, the FCA argued that clauses which include ‘diseases’ and ‘prevention of access’ should cover policyholders who suffered financial losses due to the coronavirus pandemic. The High Court agreed with this in their judgment from September 2020. The insurers made an appeal regarding this matter, however, the Supreme Court dismissed the insurers’ appeals in relation to this.
Another matter decided in the Supreme Court was whether cover would be available in prevention of access clauses. It was decided that for cover to be providedthere is no requirement for actual legislative orders forcing businesses to close. It was also decided that claims might be allowed not only for full closures but also for partial closures of premises. This of course means that policyholders will have more valid claims.
Finally, the judgment brings clarity not only for policyholders but also for insurers. Rob Benson from Grant Thornton UK LLP stated, “Although this judgement imposes an increased financial burden on some insurers, the certainty that arises from the conclusion of the appeals process allows both firms and their customers to begin making firm plans to move forwards.”
Herbert Smith Freehills, who acted for the FCA posted a detailed summary of the Supreme Court’s decision. They explained: “…and, most significantly, its findings on causation mean that it will be very challenging for insurers to deny cover, or reduce an indemnity otherwise due to an insured, on the basis that losses that would otherwise be covered under the policy would have resulted in any event from uninsured perils whose underlying cause is the COVID-19 pandemic. This will have significant implications in real terms for the indemnities received by policyholders.”
This is great news for businesses.
The judgment will mean that many small businesses will receive insurance pay-outs from losses caused by the coronavirus pandemic. This decision will greatly assist those businesses who were worried about their future and will hopefully allow them to trade beyond the current lockdown and any further future coronavirus restrictions.
The FCA stated: “The judgement brings to an end legal arguments under 14 types of policy issued by six insurers, and a substantial number of similar policies in the wider market which will now lead to claims being successful.”
Many businesses will be delighted to see that the Supreme Court have sided with them. However, each of the policies should be looked at individually and compared against the Supreme Court’s judgment. It is the FCA’s intention to work closely with insurers to make sure that each of the insurance policies are looked at in detail and decided whether claims should be paid out. If claims are to be paid out, this should be done as soon as possible, and in some circumstances, interim payments should be paid out.
Nonetheless, it will mean that many more claims will be successful and pay-outs higher. The aim is also for the insurers and policyholders to resolve their disputes, ensuring pay-outs are quicker and more efficient.
A potential issue in the near future is the speed at which insurers will now deal with each of the claims. Although insurers are expected to promptly communicate with the policyholders and to pay out claims, if each of the insurance policies will have to be considered against the judgment, this might take some time.
Sheldon Mills from the FCA stated: ‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible’.
If you are a business, and need assistance with making a claim, or need advice as to a potential claim, then do not hesitate to get in touch.
Our business lawyers are here to help with the impact of coronavirus on businesses. Please get in touch if you would like us to assist with any matters relating to your business.
If you require help or additional information, please contact one of the lawyers in our business team on 0330 107 0107 or email business@imd.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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