Business Interruption Insurance - Update on UK Financial Conduct Authority’s Test Case
Friday, 13 November 2020
On 15 September 2020, the High Court in London delivered its judgment in the UK Financial Conduct Authority’s (“FCA”) test case. The judgment provided clarity on key contractual uncertainties and “causation” issues arising from business interruption claims made during the COVID-19 pandemic1. We previously analysed this judgment in our article of 18 September.
Following this judgment, the UK High Court issued its detailed declarations (which are similar to Court Orders). We analyse the effect of these declarations in further detail below.
Separately, a number of insurers initially indicated an intention to appeal the High Court’s decision. Leave was granted to six insurers including, Royal & Sun Alliance and Hiscox, to appeal the High Court decision to the UK Supreme Court. Those insurers were expected to challenge the judgment to pay affected customers holding five types of policies2.
The position of the insurers has changed somewhat since that leave was granted as they have now elected to drop their appeals linked to the Resilience, Eaton Gate Retail and Pubs & Restaurants policies3. The insurers’ appeal now challenges the High Court’s ruling on occurrence/outbreak of COVID-19, its interpretation of leading case law in this area, and the court’s findings in relation to specific policy wordings. Those include disease and prevention of access clauses, together with hybrid-clauses (which refer to both restrictions relating to premises and the presence of a notifiable disease within a certain radius of the insured premises).
The FCA was also granted permission to appeal the September judgment. The FCA’s appeal is focused on the trends clauses, aspects of the prevention of access wordings and specific disease wordings, where cover was limited to very local outbreaks of COVID-19 only.
These appeals will be heard by the UK Supreme Court on 16 November 2020.
The decision by insurers to drop the appeal relating to a number of policies is promising for UK policyholders, with the focus now expected to shift to insurers making payments to policyholders where appropriate.
Overall, the UK High Court’s declarations bring welcomed clarity to the extent of coverage provided in business interruption policies and are potentially significant for Irish policyholders in relation to the many similar claims which have been made to date. Irish policyholders should closely consider the UK test case judgment and declarations and consider how it may be relevant to the specific wording used in their own policy.
ByrneWallace is actively monitoring developments in Ireland and the UK and is available to discuss any business interruption issues that you or your business may have.
DECLARATIONS IN THE FCA TEST CASE
The declarations reiterate the Court’s reasons set out in its judgment in the form of specific court orders. The declarations are detailed and aim to address each insurer directly in relation to their specific policies. However, there are a number of helpful general observations which will benefit policyholders pursuing business interruption claims:
Disease and Prevalence
- The Court has confirmed COVID-19 is a human infectious or contagious disease.
- COVID-19 will be “sustained” or be deemed to have “occurred” within a given radius, wherever a person/persons contracted COVID-19 so that it could be diagnosed. This does not have to be verified by medical testing/a medical professional.
- Policyholders bear the burden of proof to prove the presence of COVID-19 within the area stated by a policy on a particular date (if any). There is a range of evidence listed as acceptable to discharge this burden, including data published by different UK Government agencies (such NHS Health Data, Office of National Statistics etc.).
Public authority action
- The UK Government is classified, amongst other terms, as a governmental authority, agency, public authority and a competent public authority. There are a wide range of policy terms considered in this context in the declarations, which is helpful to policyholders.
Causation and trends clauses
- The national COVID-19 outbreak and the governmental/public reaction is to be treated as one indivisible cause; or, alternatively, each occurrence of COVID-19 can be treated as a separate, but effective, cause of national action and any consequential business interruption.
- The correct counterfactual when calculating business interruption loss is to assume that once cover under the policy is triggered, none of the elements of the insured peril are present.
Specific extension clauses
Detailed court declarations have also been provided for a number of specific extension clauses present in the business interruption policies being considered.
There are some key considerations which policyholders should be aware of when reviewing extension policy clauses:
- Some words are interpreted differently, such as the term “vicinity”, depending on the context in which such a word appears.
- Wording may vary on the event which is required to occur to trigger coverage i.e. is a nationwide occurrence of COVID-19 sufficient or alternatively, must an isolated incident occur within a certain radius of the insured premises.
- The type of public authority action required may vary in policies, ranging from government recommendations to formal legislative requirements.
- The threshold for business interruption loss may vary in policies (the simple interruption to business vs prevention of access/inability to use of premises clauses).
- Different tests of causation established by different wording of extension clauses.
Policyholders should therefore analyse the wording of extension clauses closely in their particular policy and consider how the UK Court declarations may be relevant to their own claim.
For further information on the FCA test case or on how we can assist businesses bringing COVID-19 BI claims, please contact Mark O’Shaughnessy, Partner or Tanya Cotterell, Solicitor or your usual contact in the ByrneWallace Litigation Team.
1 https://www.fca.org.uk/news/press-releases/result-fca-business-interruption-test-case
