The Supreme Court handed down judgment a couple of weeks ago in The Financial Conduct Authority v Arch and Others [2021] UKSC 1. The FCA (on behalf of policyholders) won on almost every point raised, which were related to the extent to which insurers had to pay out for Covid-19 related losses. It goes without saying that it is a lifeline to small and medium businesses across the UK.
The details are specific to the clauses in question and anyone with a specific interest can read the judgment itself (https://www.bailii.org/uk/cases/UKSC/2021/1.html). The issues covered, broadly, were as follows:
1. “Disease clauses”, which pay out when there has been a notifiable disease within a specified distance of the business premises. The Court rules that these clauses only cover disease that occurs within the specified distance, not outside it. Although the FCA lost on this point, it was a limited loss in practice, given its conclusion on causation (see below).
2. “Prevention of access clauses”, which pay out when there is prevention of access to the business premises. The Court held that applied as early as when the PM instructed businesses to close on 20 March 2020, not just when the legal restrictions later came into force.
The Court also found that although “inability” to use premises had to be found, that inability could apply to part of the business only, such as a shop front. The clause would still pay out if, for example, the shop continued to sell online.
3. The Court held that, in a disease claim, the policyholder need only show that the interruption was caused by a government restriction arising from Covid-19. The policyholder does not need to show that the government restriction was caused specifically by a Covid-19 case within their geographical distance.
Moreover, the policyholder need not prove that the losses were caused exclusively by the insured risk (i.e. the “but for” test); it was enough to show that the insured risk was sufficient to bring about the damage, even if there were other uninsured issues (e.g. disease outside a geographical restriction) that also led to loss.
4. “Trends” clauses and “pre-trigger losses”. If the level of indemnity is to be adjusted to take account of trends affecting that business, the Court held that the trends to be taken into account are those unrelated to the pandemic, not just those that are not covered by the insurance wording.
We have a good track record of assisting clients to pursue business interruption claims, both relating to Covid-19 and to other perils such as fire and explosion (though sadly we were not involved in the Supreme Court test case). Certainly many of our clients will regard this judgment as a victory of common sense over very technical and legalistic arguments by the big insurers. The wording of the judgment is fairly wide-ranging, and is likely to apply to other clauses that were not included within the judgment itself, though every policy is to be interpreted on the basis of its own wording.
There will be some cases where policyholders decided not to pursue a business interruption claim because the law was less favourable prior to the decision. However, the FCA has said that the period between 17 June 2020 and 15 January 2021 should be ignored for any time limits; if notification of a claim has not yet been made, it should be made immediately.
There will be other policyholders who settled their claim on a “full and final settlement” basis, relying on the less favourable law prior to the Supreme Court’s decision. Again, the FCA has said that insurers ought to reopen some of those cases, regardless of any “full and final settlement” reached, if the policyholder was not adequately made aware of the test case and the potential for a change in the law.
In our experience, though, most day-to-day issues with business interruption claims relate to evidence of losses, and good analysis of the figures, rather than interpretation of the clause itself. It is vital to keep good records of accounts, stock, employees and management time, premises and sales/purchases; those will be relied upon when assessing a claim. Expert evidence, such as from a forensic accountant or industry-specific expertise, is often vital in establishing the claim.
If you need help pursuing a business interruption claim, please get in touch.
