FCA Court Case – Supreme Court Judgment, Friday 15 January 2021
On Friday, the Supreme Court handed down their judgment on the High Court test case brought by the Financial Conduct Authority (FCA), regarding business interruption insurance claims and COVID-19.
The case involved the policy wordings of six insurers and, in a number of respects, the court found in favour of the FCA. The judgment is binding on the six insurers, and insurers with similar wordings will be required to interpret their wordings in light of the ruling.
What does this mean for your business and any losses it suffered due to COVID-19?
The court case examined only a very small cross-section of commercial insurance policies, which contained unclear or ambiguous clauses in the FCA’s view. In bringing the case, the FCA wanted a binding, independent decision from the court on how these policies should be interpreted to provide clarity and to avoid individual policyholders having to pursue expensive, individual action.
The FCA further sought disclosures from all insurers as to whether any other policy wordings had the same or similar disputed clauses. The FCA also notified insurers that they would expect them to take the same action as those directly involved in the test case.
It should be remembered that the vast majority of policy wordings are clear and did not provide cover for COVID-19 (or its consequences) in any way, and these policies remain unaffected by the Supreme Court’s decision.
You have already submitted a claim and were informed that your policy wordings are ‘in-scope’ or, in other words, potentially the same or similar to those examined in the test case. What happens next?
Those insurers who participated in the FCA’s test case were told to contact every client that had made a claim for business interruption due to COVID-19 and inform them whether a decision on their claim would be affected by the court’s ruling, even if a decision had already been made. The court also allowed for ongoing claims to be put on hold pending the appeal decision.
Obviously, we want all valid claims to be settled without delay by insurers. However, if you do have an ‘in-scope’ claim, please be aware that more claims assessment and/or adjusting may be required before any final settlement is made.
The FCA has issued a “next steps” communication because of the relatively complex nature of the judgment. They are working with the court and insurers to ensure that the process is handled consistently and keeps to a timetable. The process involves the court issuing a set of declarations as well as a consultation process, which is not scheduled to end until 22 January. Our view is that it’s very unlikely that any valid claims will be settled before the end of this month. However, we are keeping a close eye on developments and further information will appear here.
You have submitted a claim and were informed that it is ‘out of scope’. In other words, the policy wording is not the same or similar to those examined in the test case and was declined. So, what happens next?
Insurers are required to review their policy wordings in light of the judgment. If these are materially the same as the wordings that have been ruled to provide cover, they will need to pay claims accordingly. However, for most claims previously defined as ‘out of scope’, it is anticipated that cover will continue NOT to apply.
If you have yet to submit a claim what do you do now?
There is nothing to stop you from submitting a claim for COVID-19 related losses to your business. Your Account Executive can provide guidance as to our interpretation of your policy coverage and give a view, therefore, as to whether we think it is likely to be covered or not. However, notwithstanding this, we can submit a claim to your insurers, if you wish to do so.
Is COVID-19 and its consequences now excluded from your policy?
Most insurers have moved to exclude any potential COVID-19 related cover, particularly in their property and business interruption wordings, for the last eight to nine months now. Depending on when your policy falls due for renewal, relevant exclusions are likely to be in place already and will have been highlighted in documentation from us. If in doubt, please contact your Account Executive.
What is the position regarding any liability claim you may receive from employees or members of the public related to COVID-19?
Please submit any potential claim for either employer’s liability or public liability to us for review as soon as possible, and do not enter into any correspondence with a claimant, as this may prejudice your policy’s position.
We will review any claims in the context of your policy’s coverage and advise you accordingly.
The Supreme Court’s judgment has provided some significant progress in clarifying cover for COVID-19 losses under certain policy wordings. However, it should be noted that, in purely numerical terms, this only affects a very limited number of policies covering UK business as a whole.
The Court will work with insurers and the FCA over the coming days to create a set of declarations. Insurers will then need to interpret their policy wordings in light of these declarations. We should have greater clarity shortly. Nevertheless, where cover is deemed to apply, we would expect insurers to proceed with the validation and/or settlement of claims quickly.