Follows Aug. 2020, FCA statement deductions re government support, see #83361.
Insurers Should Reflect
Insurers should reflect on clarity provided in the ruling and irrespective of any appeals, consider steps they can take now, to progress claims of the type that should be paid.
FCA highlighted that insurers should also communicate directly and quickly with their policyholders, who have made claims affected by the judgment, to explain next steps.
Types of Insurance Cover
Many policyholders whose businesses were affected by Covid-19 suffered major losses.
Losses resulted in a large numbers of claims under business interruption (BI) policies.
Most SME policies are focused on property damage, and only have basic cover for BI.
Some cover BI from infectious / notifiable diseases (disease clauses) and non-damage denial of access and public authority closures or restrictions (denial of access clauses).
FCA Aim of Test Case
In some cases, insurers accepted liability, in others, insurers disputed coverage scope.
Mixed responses lead to widespread concerns, about the lack of clarity and certainty.
FCA aimed to urgently clarify issues of contractual uncertainty for as many as possible.
They selected a representative sample of policy wordings, as issued by eight insurers.
FCA put forward policyholders’ arguments, to their best advantage in public interest.
370,000 policyholders were identified as holding policies that may be affected by case.
High Court Judgement
High court judgment is complex, runs to over 150 pages, and deals with many issues.
FCA sought to establish liability, under the representative sample of policy wordings.
The FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
Judgment says that most, but not all, of disease clauses in the sample provide cover.
It also says that certain denial of access clauses in the sample provide cover, but this depends on detailed wording of the clause, and how a specific business was affected.
Includes if a firm subject to mandatory closure order, was ordered to close completely.
Clarified that Covid-19 pandemic and Government and public response, were a single cause of covered loss, a key requirement for claims to be paid even if policy covers.
Judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court.
Each policy needs to be considered against judgment, to work out impact on a policy.
Policyholders with affected claims can expect to hear from insurers within next 7 days.
FCA and insurers are considering judgment and what it might mean in case of appeal.
Any applications to appeal, will be heard at consequentials hearing before High Court.
FCA and defendant insurers have agreed that they will seek to have any appeal heard on an expedited basis, given the importance of the matter for so many policyholders.
This includes exploring the possibility of any appeal being a leapfrog appeal to the UK Supreme Court, rather than needing to be initially heard by the UK Court of Appeal.
FCA will keep policyholders updated of matters as they progress, via specific webpage.