The Business Interruptions Judgment is in!
Some of you have been eagerly awaiting the outcome of the test case brought by The Financial Conduct Authority (FCA) on behalf of policyholders for a declaration by the Court under the Financial Market Test Case Scheme set out at Practice Direction 51M of the Civil Procedure Rules.
The test case, determined to be urgent and which raised issues of general importance in relation to which immediate relevant authoritative English law guidance was needed, examined the wording of some 21 policies issued by 8 insurers; albeit the FCA believes the judgment on the wording is likely to impact circa 60 different insurers and 370,000 policyholders.
The test case itself was remarkable issued on 9 June 2020, was heard between 20-30 July 2020 with the Trial taking place remotely via Skype with members of public able to watch via livestreaming, the Judgment was handed down 15 September 2020.
What is the outcome? The Lord Justice Flaux and Mr Justice Butcher, found in favour of the majority of the arguments advanced by the FCA for the benefit of policyholders. In summary, some of the main findings relate to:
- Disease Clauses – policies which provided for business interruption cover for particular infectious or notifiable diseases would be covered and policyholders need not rely on local outbreaks before cover commences
- Prevention of Access/Public Authority Restriction Clauses – policies which provided for business interruption cover where access is restricted due to public authority advice or due to emergency or endangerment to life would be covered subject to more scrutiny over the exact wording in the clause of each policy and the nature of the business involved.
- Hybrid Clauses – policies which provided for business interruptions cover due to prevention of access, imposed by public authority following an infections or notifiable disease (a blend of former clauses) it followed that no local outbreaks were necessary, however, just as for the prevention of access/public authority restriction clauses, the policy wording would be subject to scrutiny and would depend on the nature of the business.
- Trend Clauses – they are typically included in business interruption cover to allow for adjustment to put the policyholder in the same trading position after the interruption as it would have been had the loss not occurred. This was of critical importance as to construe this narrowly, could mean putting the policyholder back in the same trading position after a local outbreak occurrence, with typical downturn in business due to other effects of the pandemic and government measurers making the value of any claim negligible. The Court sided with the FCA proposal that the whole of the effects of insured peril in each of the clauses is removed from calculation the financial trading position otherwise.
What happens next? The Judgment did not hold that all 8 insurers were liable for all 21 different policies reviewed. Each one would need careful consideration against the Judgment. The Judgment did not give guidance on how much was payable under each policy. The FCA says those policyholders effected are likely to be contacted within the next 7 days by the insurer. However, there is also every chance that the insurers will appeal the decision.
There is nothing to stop policyholders from formulating their claim now for their business losses, but we would advise that this is done carefully, with input from your business accountants and with careful consideration of all loss of business opportunity as well as straight forward loss of profit. There is likely to be more news regarding local restrictions and curfews announcements which will continue to impact many businesses in the months to come, so the right time – may not be now.
The FCA promises to keep the public updated on any appeals and further decisions arising from this test case. It has even allowed interested parties access to the FCA’s legal team next week on Monday 21 and Tuesday 22 September 2020.
If you have any issues dealing with your insurance company or need assistance with the formulation of your claim, do not hesitate to take independent legal and financial assistance and hear at Clear Commercial you can contact Miss Modasia on 0161 873 2797.