If you have any queries in the meantime, please email our dedicated mailbox Covid-19enquiries@swib.co.uk or speak with your usual Sutton Winson team.
Next steps
The implications for the small number of our customers is now receiving our immediate attention. We will shortly be communicating more fully with those customers who are impacted by the Supreme Court judgement.
The FCA Business Interruption Test Case
Introduction
On the 13th July 2021, the Supreme Court ordered that the High Court declarations made in the Business Interruption test case be varied, following its judgment on the 15th January 2021. These declarations record the outcome of the judgments made and determine whether the test case policies potentially cover Business Interruption losses arising from the pandemic and in what circumstances.
The judgment provides both policyholders and insurers with clarity as to whether customers have cover, can make a valid claim and if so, the amount due to them. Insurers remain obligated to contact all policyholders who have wordings that are the subject of the test case. Sutton Winson will also contact all our clients who we believe have a potential claim for Business Interruption losses sustained due to COVID-19, as a result of the Court’s judgement.
Below is a summary of the judgment and facts leading to the case being brought.
Background
Following the outbreak of COVID-19 the body representing insurers, The Association of British Insurers’ (ABI), issued a statement indicating:
- It’s never been the intention of the insurance market to pay for the consequences of a pandemic
- Protection ought to be provided by Governments or separately funded schemes similar to arrangements put in place for Terrorism & Flood in the UK
- It’s unlikely that insurers have sufficient funds to cover such losses
What quickly became apparent was that certain insurers non damage extensions to their Business Interruption (BI) wordings (i.e. Denial of Access, Notifiable Diseases and Actions of Public Authorities) were not as clear as others. In consequence, a legal challenge by the regulator, the FCA, was inevitable.
The Test Case
Whilst the FCA acknowledged the majority of policyholders didn’t have cover, their focus, as stated above, was on the Non-Damage BI extensions of some insurer’s wordings where they believed ambiguity existed and potential cover was provided.
In May 2020, the FCA announced their intention to obtain a court declaration for a test case and to resolve contractual uncertainty around BI cover. The FCA said they had identified a representative sample of policy wordings to be examined in the test case and insurers had been invited to participate in the proceedings.
In July 2020, an 8 day court hearing took place with a judgement being handed down on the 15th September 2020. Given that certain insurers had said they would appeal the High Court decision, certificates were granted for a ‘leapfrog’ appeal to the Supreme Court. This was the fastest way to get legal clarity for all parties and to enable pay-outs on eligible claims.
Sutton Winson's (SW) response
At SW, we followed developments closely and set up a dedicated team to ensure a flow of information both to our customers and staff, posting regular updates on our website.
We were very pleased that the regulator stepped in to bring the test case before the courts and for the ultimate clarity the judgement now brings.
What did the Supreme Court decide?
On the 13th July 2021, the Supreme Court ordered that the High Court declarations made in the Business Interruption test case be varied, following its judgment on the 15th January 2021.
How have the insurers reacted to the judgement?
The ABI fully support all valid claims being settled as quickly as possible.
Managing expectations
Unfortunately some of the recent Press reports have not provided the context or clarity required. As a result, expectations of an insurer pay-out may have been raised unnecessarily.
It is worth noting that the FCA did not appeal the original High Court decision where certain insurer policy wordings were deemed to be clearly constructed. As a result, cover for the pandemic is excluded. Therefore, for these policyholders, the Supreme Court ruling will unfortunately not change anything.
The majority of UK businesses will still find that their BI cover won’t provide cover for the consequences of the pandemic. The court’s decision only applies to a limited number of policies which inadvertently included an element of cover.
The future
Those insurers who were identified as having ‘ambiguous’ policy wordings and who ‘unintentionally’ provided cover, have already taken steps to amend their policy wordings. Therefore, the insurance industry now has to work closely with the government to provide a long term solution, to help businesses cope with the financial consequences of any future pandemic.
Latest update on the FCA's Business Interruption test case
15th December 2020
The Supreme Court has advised that it will not be in a position to hand down the judgment before January 2021. We will update this page as soon as we are aware of the outcome and contact all of our clients that may be affected by the Judgment.
Click here for a link to the FCA website.
19th November 2020
The Supreme Court hearing has now ended, the Justices have confirmed that they will do what they can to provide judgment as soon as possible. However they would not comment whether that would be before Christmas or in January.
2nd November 2020
The FCA have confirmed that on the 2nd November, the Supreme Court granted permission to appeal to all those who had applied for it. The appeal in the Supreme Court will be heard from Monday 16th November and is expected to last for 4 days.
It is believed that this 'leapfrog' appeal to the Supreme Court is the fastest way to get legal clarity for all parties in the event that it is not possible to find a solution with insurers which resolves the outstanding issues, before the appeal takes place, to enable pay-outs on eligible claims.
Latest update on the FCA's Business Interruption test case
15th December 2020
The Supreme Court has advised that it will not be in a position to hand down the judgment before January 2021. We will update this page as soon as we are aware of the outcome and contact all of our clients that may be affected by the Judgment.
Click here for a link to the FCA website.
19th November 2020
The Supreme Court hearing has now ended, the Justices have confirmed that they will do what they can to provide judgment as soon as possible. However they would not comment whether that would be before Christmas or in January.
2nd November 2020
The FCA have confirmed that on the 2nd November, the Supreme Court granted permission to appeal to all those who had applied for it. The appeal in the Supreme Court will be heard from Monday 16th November and is expected to last for 4 days.
It is believed that this 'leapfrog' appeal to the Supreme Court is the fastest way to get legal clarity for all parties in the event that it is not possible to find a solution with insurers which resolves the outstanding issues, before the appeal takes place, to enable pay-outs on eligible claims.
If you have any queries in the meantime, please email our dedicated mailbox Covid-19enquiries@swib.co.uk or speak with your usual Sutton Winson team.
Useful links
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For guidance proving the presence of COVID-19 in a particular area, based on the Supreme Court’s declarations, click here to view the FCA's guidance.
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For checking whether your insurance policy may cover business interruption losses due to COVID-19, click here to use the FCA's policy checker.
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For the latest public information from the UK Government click here
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For health advice and guidance from the NHS click here
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For up-to-date travel advice from the Foreign & Commonwealth Office (FCO) click here
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For the most recent information from the World Health Organisation (WHO) click here
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For further information about UK Government support for businesses, click here
As has been referenced previously, the majority of insurers don't intend to cover pandemics and many policies have a specific exclusion to this effect. Where there is any doubt, endorsements are being added at renewal to make this clear.
Pandemic Re was launched in April and is following the same template set by the government backed terrorism mutual, Pool Re set up in 1993. The steering group are working closely on a number of possible different approaches to providing cover for future losses from pandemic risks.
Information correct as of: 17/06/2020
If your policy has Denial of Access (non-damage) and Disease extensions it may respond due to:
- An outbreak of a notifiable disease at the premises.
- Denial/prevention of access by the UK Government, Police or Local Authority.
At the moment, the insurers have denied there is any cover and await the outcome of the FCA test case to obtain a judgement.
Information correct as of: 21/08/2020
It will depend on the exact wording. In cases where cover may apply, this will be again subject to the individual policy wording and circumstances.
At the moment, the insurers have denied there is any cover and await the outcome of the FCA test case to obtain a judgement.
Information correct as of: 21/08/2020
As COVID-19 is a new disease, it’s unlikely it will be specified under any policy.
Some policies aren’t specific and allow for 'Notifiable Diseases'. In cases where cover may apply, this will be again subject to the individual policy wording and circumstances.
A small number of wordings with this wider extension have been included as part of the FCA test case. At the moment, the insurers have denied there is any cover and await the outcome of the FCA test case to obtain a judgement.
Information correct as of: 17/06/2020
The cover is normally for damage to neighbouring property and may exclude actions to suppress and/or control the spread of a disease.
A small number of wordings have a wider extension and have been included as part of the FCA test case. At the moment, the insurers have denied there is any cover and await the outcome of the FCA test case to obtain a judgement.
Information correct as of: 17/06/2020
A standard BI policy doesn’t cover you for the losses relating to the impact of COVID-19. It’s designed to respond to losses following damage to property by e.g. a fire or flood. COVID-19 does not constitute “damage”.
Some policies have extensions for:
- Denial of Access (non-damage)
- Notifiable Diseases (non-damage)
- Actions of Public Authorities (non-damage)
Information correct as of: 17/06/2020
In the best interest of our clients, we set up a specialist team to review all our commercial policies to find those which may have a small element of cover. Having completed our own investigations and reviewed every commercial policy we place in order to assess the extent of BI cover available as a result of COVID-19, we have identified a small number of clients who have potential grounds potential grounds to claim under the BI section of a policy wording.
We have contacted those clients whose wordings are on the FCA test case list or have an element of cover. It is important that we emphasise that these are potential grounds, depending on specific circumstances, and subject to the outcome of the FCA test case.
Even if something favourable to policyholders is decided by the High Court in the FCA test case, there may still be other issues that need to be assessed by insurers.
We will continue to monitor the FCA test case on your behalf and will update you and inform you if anything positive is handed down by the High Court.
Information correct as of: 21/08/2020
The media have reported various responses made by insurers. The FCA have applied and succeeded in running a test case to resolve contractual uncertainty around Business Interruption (BI) insurance.
Whilst the FCA acknowledge that the majority of policyholders don’t have any cover, their focus is on the Non-Damage BI extensions of some insurer’s wordings that may have some potential cover.
Below is a timeline of what’s happened so far and how the FCA envisage the test case investigations will proceed. Please note; there remain a number of uncertainties to the timeline, including the consent of the court:
| 15th April | FCA wrote a letter to the CEO's of London market insurers, specifically in relation to SME BI insurance. |
| 1st May | FCA announced intention to obtain a court declaration for a test case to resolve contractual uncertainty around BI cover. |
| 1st June | FCA announced they’ve identified the representative sample of policy wordings to be examined in the test case, the insurers that use those wordings, and which of those insurers they have invited, and have agreed, to participate in the proceedings. |
| 9th June | FCA start claim in the High Court. |
| 16th June | Case management conference, at which the court will be invited to fix the timetable for the case and other procedural matters. |
| 23rd June | Insurers file Defences. |
| 26th June | Further case management conference, at which the court dealt with outstanding procedural matters. |
| 3rd July | FCA filed Reply. |
| 10th July | FCA and Intervenors’ skeleton arguments served. |
| 14th July | Defendants’ skeleton arguments served. |
| 20-23rd & 27-30th July | 8 day court hearing before Lord Justice Flaux and Mr Justice Butcher. |
| 15th September | The High Court has handed down its judgment in the FCA’s Business Interruption insurance test case. We are currently considering this lengthy judgment and digesting the decision of the Court. Every policyholder who has made a claim or complaint that is potentially affected by the judgment should receive an update from their insurer within 7 days. In addition, we will be contacting all of our clients affected by this judgment, whether or not they have already submitted claims to insurers, in the near future. We will also post any further updates on this page of our website. For further information, click here for a link to the FCA website. |
| 2nd October | Following the consequentials hearing, the High Court granted certificates for a ‘leapfrog’ appeal to the Supreme Court, the FCA, six defendant insurers and the Hiscox Action Group are entitled to apply to the Supreme Court for permission to appeal. The FCA has advised it is reviewing the final declarations to decide on next steps. |
| 20th October | The FCA has provided an update on its website and published the High Court declarations following the consequentials hearing on the 2 October 2020. These declarations explain how and to what extent the policies in the representative sample respond to BI losses arising from COVID-19. Discussions between the FCA and the insurers/action groups are continuing in order to find a solution that resolves the outstanding issues as soon as possible and to enable pay-outs on eligible claims. In parallel, the FCA, the six defendant insurers and the Hiscox Action Group have applied to the Supreme Court for permission to appeal. Further, the FCA has published its application for permission to appeal to the Supreme Court (dated 12 October 2020). It has also published (see here) the applications to appeal to the Supreme Court from the six defendant insurers and the Hiscox Action Group. |
| 2nd November | The FCA have confirmed that on the 2nd November, the Supreme Court granted permission to appeal to all those who had applied for it. The appeal in the Supreme Court will be heard from Monday 16th November and is expected to last for 4 days. It is believed that this 'leapfrog' appeal to the Supreme Court is the fastest way to get legal clarity for all parties in the event that it is not possible to find a solution with insurers which resolves the outstanding issues, before the appeal takes place, to enable pay-outs on eligible claims. |
| 19th November | The Supreme Court hearing has now ended, the Justices have confirmed that they will do what they can to provide judgment as soon as possible. However they would not comment whether that would be before Christmas or in January. |
| 15th December | The Supreme Court has advised that it will not be in a position to hand down the judgment before January 2021. We will update this page as soon as we are aware of the outcome and contact all of our clients that may be affected by the Judgment. Click here for a link to the FCA website. |
The overall aim of this investigation is to speed up the process for customers making claims if they do have some cover and to protect the integrity of the industry - click here for further information.