High court rules in favour of policyholders in FCA case
The COVID-19 pandemic has brought on major disruption for business owners in the UK, through widespread closures and a flurry of new safety practices and regulations upon reopening. This has resulted in a significant monetary loss for many businesses, some of which have been unable to reopen as a result of the impact of the nationwide lockdown.
Over this time, a large number of businesses attempted to make a claim on their business interruption (BI) policy, only to be told that this scenario was not covered under the terms of their policy. This led to concerns about the basis on which insurers were making these decisions.
In May 2020, the FCA announced its intentions to bring a test case to the High Court of England in order to gain legal clarity on business interruption insurance wording in relation to COVID-19 claims. The purpose of this was to ensure that policyholders were being treated fairly by insurers and intermediaries.
The result of the FCA high court ruling
Christopher Woolard, Interim Chief Executive of the FCA, commented:
“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.”
How the FCA judgement affects businesses
This case was based on a sample of 21 policies from eight insurers and does not mean that all business interruption claims will be automatically upheld. According to the FCA, there are around 370,000 firms affected by the judgement and they should be contacted by their insurers in the next week. These are estimated to add up to a value of around £1.2bn. You can find full details of the judgement here.
This will be welcome news for some, however, we must stress that the Court’s findings vary between insurers, policy wordings and will depend on individual circumstances. This means that each claim will need to be considered against the relevant sections of the judgment.
We will be working closely with insurers and loss adjusters to ensure that you are kept up-to-date with news and developments on this.