The eagerly anticipated judgment of The Financial Conduct Authority v Arch and Others was handed down by the High Court on 15 September 2020 bringing some helpful clarification to the meaning of Covid-19 in respect business insurance policies.
Background to The Financial Conduct Authority v Arch and Others
Following the outbreak of Covid-19, many UK business faced serious working limitations or mandatory closure in light of the government lockdown rules.
On 5 March 2020, Covid-19 was confirmed to be a notifiable disease in England and Wales by Law, by the addition of the disease to the Health Protection (Notification) Regulations 2010. On 21 March 2020, Government regulations ordered mandatory closures of various UK businesses such as pubs, restaurants, gyms etc.
Facing significant disruption to trade, business owners understandably sought to claim loss in income against their business insurance policies via business interruption clauses.
However, many insurers rejected claims by disputing the interpretation of policy wording and the Notifiable Disease and Denial of Access extensions contained within business interruption policies.
Accordingly, the FCA took action against 8 insurers in a test case. The FCA asked the High Court to review 21 different sample policy wordings by the 8 insurers to determine the circumstances where policyholders can claim a loss for Covid-19 related business interruption.
The FCA test case for business interruption claims
The FCA argued on behalf of policyholders that Notifiable Disease and/or Denial of Access clauses in the representative sample of policy wordings should provide cover in the circumstances of Covid-19, and that the trigger for cover caused policyholders’ losses.
Following expedition of the matter by the Court, judgment has now been handed down resulting in the majority of rulings found in favour of policyholders.
The judgment said that most but not all ‘notifiable disease’ clauses in the sample provide cover, and certain ‘denial of access’ clauses in the sample may provide cover, but this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely. We will be reporting on the policy terms discussed in the judgment in due course.
The judgment is a positive outcome for many policyholders. The FCA welcomed the judgement as a ‘significant step in resolving the uncertainty being faced by policyholders’.
However it is important to note that this does not mean insurers will simply pay out on all business interruption claims. Insurers may still rely on specific policy wordings, or specific circumstances of policyholder’s business closures, as reasons not to pay out on claims.
As a business owner, you should seek specialist advice to carefully consider your policy wording in line with the guidance provided in the judgment, and the facts surrounding your loss of income claim. It is also expected that insurers will appeal the decision and therefore the parties have agreed that in the instance of appeal the matter will be expedited to the Supreme Court, surpassing the Court of Appeal.
Insurers should advise policyholders potentially affected by the decision within 7 days of the judgment.