Business interruption insurance – test case fast-tracked to Supreme Court

By Ted Powell and Stephanie Reeves

On 2 November 2020, the Supreme Court confirmed that it will hear the appeals in the Financial Conduct Authority’s (“FCA”) business interruption insurance (“BI”) test case on 16 November 2020. The case was initially heard by the High Court to consider whether various BI policy wordings should cover losses arising out of Covid-19 and the resulting Government measures. There was some surprise in the industry when the High Court found largely in favour of insured businesses. However, the judgment has been widely disputed by insurers and the appeal to the Supreme Court is needed to bring certainty as to which policies cover Covid-19 related losses. In advance of of the appeal, we take a look in this article at what exactly is being appealed and what the appeal means for businesses.

What is being appealed?

In October, the High Court declarations were published. These were the culmination of the High Court judgment and they set out how, and to what extent, the sample policies considered in the test case responded to losses caused by Covid-19. The key areas covered by the declarations were:

• The occurrence and prevalence of Covid-19;
• Public authority action;
• Causation and trends clauses; and
• Specific declarations in relation to the insurer’s “disease”, “denial of access” and “hybrid” policy wordings.

The insurers have appealed most of the High Court declarations. However, the appeal of the declarations relating to causation are particularly significant. The High Court initially found that the Covid-19 pandemic, the actions, measures and advice of the Government, and the reaction of the public in response to the disease should all be treated as one composite cause. This is a crucial decision for businesses; it makes it significantly easier to show that Covid-19 caused the losses which they have suffered and means that businesses should be covered for loss caused by any of these factors.

If the view of the Supreme Court differs from the High Court’s view, businesses may only be covered for loss caused by the pandemic itself. This will make it more difficult for businesses to claim against their BI policy, as many businesses’ losses have been caused by the government response to Covid-19, for example restriction in travel and closure of certain types of businesses, rather than as a result of the pandemic itself.

What does the appeal mean for businesses?

Initially, the appeal is likely to mean further delay for businesses that are pursuing claims. Insurers are unlikely to agree a solution to enable pay-outs on eligible claims until the Supreme Court has issued its judgment.

However, the Supreme Court decision will be final and the insurers will not be able to appeal it further. This means that once the Supreme Court judgment is handed down, businesses will have clarity and certainty as to whether their policies cover Covid-19 related loss. Many businesses may be unable to claim against their insurance if the Supreme Court disagrees with the High Court’s findings. However, if the Supreme Court upholds the High Court’s findings businesses may well be covered and insurers will have to pay-out on eligible claims.

Whilst we await the Supreme Court decision, it’s important for businesses to keep collecting evidence to support their claims. Businesses should monitor and record the financial impact of the new nationwide Covid-19 restrictions in force from November 5 until December 2 in England and the "firebreak" lockdown in Wales as these are likely to cause further loss. In addition, businesses should keep track of any information which shows Covid-19 has occurred near their premises, which is a requirement for many policies. The significant increasing in testing, combined with rising Covid-19 rates, may make it easier for businesses to prove that someone had Covid-19 within the vicinity of their premises.

 If you would like any further information or would like to discuss the impact of the judgment on your business, please get in touch with Stephanie.reeves@irwinmitchell.com or Ted.Powell@irwinmitchell.com

The Supreme Court decision will be final and the insurers will not be able to appeal it further. This means that once the Supreme Court judgment is handed down, businesses will have clarity and certainty as to whether their policies cover Covid-19 related loss.”