Thu, 21 Jan 2021
In a landmark ruling the UK Supreme Court unanimously decided that insurance policies providing business interruption insurance, provide cover against the COVID-19 pandemic and the governments lockdown measures. An estimated 370,000 business policy holders may be eligible to make a claim for the interruption of business and loss of revenue due to the COVID-19 restrictions.
The proceedings were instigated by the United Kingdom’s financial services regulator, the Financial Conduct Authority (“FCA”) under the Financial Markets Test Case Scheme. The appeals stemmed from a decision of the English High Court in a case brought by the FCA against eight of the major providers of business interruption insurance. The approach was to consider a representative sample of standard form business interruption policies in the light of agreed and assumed facts. A total of 21 policies were considered, although, there may be 700 different policies provided by approximately 60 insurers. The Supreme Court handed down its series of judgments on 15 January 2021, substantially allowing the FCA’s appeals and dismissing the insurers’ appeals on most, but not all issues. This means that policyholders who have cover may now have their claims for coronavirus-related business interruption losses assessed in light of this judgment.
See the full judgement of the Supreme Court http://www.bailii.org/ew/cases/EWHC/Comm/2020/2448.html
Prior to the judgment there had been widespread concern about the lack of clarity and certainty for customers making these claims, and the basis upon which insurers would make their decisions. Whilst the judgment will bring welcome relief; it does not determine how much is payable under individual policies but provides guidance for doing so. It is likely, scenarios where partial loss is caused due to the crisis, for example where a restaurant is forced to close but continues trade to serve take away meals, the reduction in revenue may still qualify for a successful insurance claim. There will no doubt be disputes about what methodology to apply when assessing claims.
Following the handing down of the judgement the FCA issued a press release, in which, Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented:
“..This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.
‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps….”
This was followed up by a Dear CEO letter to all insurers on the subject of business interruption insurance on 22 January 2021, it can be found at https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-business-interruption-insurance-january-2021.pdf
In the United Kingdom, the Supreme Court judgment will be considered in other court cases, by the Financial Services Ombudsman, and the FCA when overseeing whether insurers are treating customers fairly. In Jersey, whilst not legally binding, it is likely to be considered as highly persuasive by the Royal Court. The Jersey Financial Services Commission is also likely to consider the findings when reviewing a complaint against an insurer. The Channel Islands Financial Ombudsman (“CIFO”) has issued guidance to local businesses on the subject of business interruption insurance claims which is accessible via the following link https://www.jerseybusiness.je/wp-content/uploads/2020/05/FACTSHEET-Business-Interruption-Insurance-2.pdf. It is important to note that the CIFO is constrained by statute and can only deal with complaints from individuals or microenterprises with less than EUR 2 million per year turnover and fewer than 10 full-time equivalent employees.
Most insurance cover sold locally, in Jersey, via a broker is sourced from insurers located in the UK and the wording of business insurance policies written in the Channel Islands largely mirrors the content of those sold in the United Kingdom. The judgement, therefore, provides hope for some channel Island businesses that they may have a legitimate claim arising from their business interruption cover. The position locally is however, not straightforward. The wording of individual policy documents will need to be carefully considered together with the timing of the outbreak of COVID-19 in the Channel Islands and the restrictions/ guidance issued by Governments in both Islands, particularly where it differs to the approach taken in the United Kingdom.
The opinions expressed in this article are the authors own
 This is a scheme which enables a claim raising issues of general importance to financial markets to be determined in a test case without the need for a specific dispute between the parties where immediately relevant and authoritative English law guidance is needed.