Test case judgment could be ‘the difference between life and death’ for Covid closed businesses

Brokers celebrate being awarded greater clarity on how to deal with Covid-19-related non-damage business interruption (BI) claims as the High Court today published its verdict on the FCA’s unprecedented test case.

The legal proceedings, which analysed BI policy wordings across eight different insurers, were designed to provide clarity on the interpretation of non-damage BI clauses in relation to claims made because of the Covid-19 pandemic and associated government steps, such as the national lockdown.

This morning, Lord Justice Flaux and Mr Justice Butcher confirmed that they agreed with the majority of the FCA’s arguments, in particular those surrounding the interpretation of coverage triggers for disease and hybrid causes, certain denial of access and public authority clauses as well as the regulator’s view on causation and trends clauses.

The verdict will also enable brokers to heave a sigh of relief, as the extra detail and guidance provided by the judgement can help them assist clients with their pending BI claims.

Simon Mabb, managing director of commercial insurance at Romero Insurance Brokers, said he welcomes the High Court result, especially as “this judgment will likely be the difference between life and death for [certain] businesses”.

He continued: “The first review of the judgment seems to be positive for a large number of our clients who had policies involved in the test case.

“Our own NDML Late Leisure wording was part of the test case and we welcome the judgment, especially for a number of our clients that still aren’t able to open - this judgment will likely be the difference between life and death for these businesses.

“As a business, we went out on a limb to support our clients and help fight for this judgement, so it is pleasing that our hard work has paid off and we could have made the difference for many businesses.”

Fellow broker Marsh agreed, adding that the judgement is “an important step towards greater clarity”. A spokesperson for the firm said: “This decision is an important step towards greater clarity for our clients.

“Over the coming days we will be communicating with them after examining the findings. We continue to support all our clients’ claims and will look for ways to achieve favourable outcomes for them. Where the court has found that policies respond to the circumstances of Covid-19, we expect insurers to pay these claims without delay.”

Careful review

A briefing note from broker Aston Lark, compiled by Richard Graham, head of claims and risk management, and Rob Hammond, associate director for technical claims, said that the firm will “carefully review each page of the judgment to fully consider the coverage position under each of the included wordings”.

The pair referenced FCA figures which estimate that around 700 insurance policies across 60 different insurers and 370,000 policyholders will be affected by the High Court ruling.

The note said: “The judgment should bring welcome news for a number of our clients that have been heavily impacted by Covid-19 and once we fully understand the implications of the judgment, we will contact each of our affected clients to provide more information.

“The judgment does not provide any sweeping and general conclusions, applicable to all of the sample wordings involved, and we will therefore need to carefully review each page of the judgment to fully consider the coverage position under each of the included wordings. We will seek to complete this review at the very earliest.

“Pleasingly, the Court has ultimately viewed these policies objectively and have applied the correct stance of deciding on whether a policy does nor does not cover Covid-19 based on what is written and what a reasonable person would have understood the parties to have meant by the language used.”

Aston Lark also expects one or more of the participating insurers to appeal the High Court decision. Graham and Hammond continued: “Insurers have already asked for more time to put in an application for permission to appeal. Any appeal does not stop our clients seeking to settle their claims with their insurer before the outcome of any appeal is known.”

Industry importance

Broker membership organisation Biba also recognised the importance of today’s judgment, however it emphasised that complaints can still be taken to the Financial Ombudsman Service (FOS) as an alternative option.

It said: “Covid-19 and the application of insurance in relation to business interruption insurance created a complex situation requiring legal consideration of the many different issues of proximate causation and wording interpretations. That is why, from the outset, we welcomed the FCA intervention in bringing this test case and the ultimate clarity the judgment will bring - once any appeal process is complete.

“We recognise how important this case is for customers and the insurance industry alike and we will study the judgment in detail over the coming days while waiting to see if any of the parties appeal.

“Meanwhile, the outcomes do not prevent individual policyholders from pursuing issues through the courts, or eligible complainants from taking a complaint to the Financial Ombudsman Service.”

Future solutions

Although the High Court ruling has given clarity and parameters for current BI claims linked to Covid-19, Biba added that the industry also must not lose sight of preparing for another future pandemic – it believes a “public-private partnership” is the best option here.

It continued: “Looking forwards, it is important that we have a solution so that customers can be protected in the event of another pandemic. It is our belief that a public-private partnership would be the best means.

“Already in the UK we have been looking at a model called Pandemic Re and many other nations are also considering these types of shared risk models.

“Pool Re, which is the UK’s answer to terrorism risk, provides a working example of how such a partnership could work in practice.”