The Supreme Court has released its judgment on the business interruption insurance test case. Commenting, on the judgment, FCA noted that the Court has substantially allowed FCA’s appeal on behalf of policyholders.
- The key issues addressed in the judgment relate to coverage provided by the sample policies under the “disease” and “prevention of access” clauses. The elements under appeal related, broadly to interpretation of disease clauses, interpretation of the prevention of access and hybrid clauses, causation, the trends clauses, pre-trigger losses and the “Orient Express” decision. The High Court had said most of these applied and that the pandemic and the Government and public response to it caused the losses. The relevant insurers appealed this for 11 of the 12 policy types considered but the Supreme Court has dismissed the appeals – on different reasons from those of the High Court. The Supreme Court said cover may be available for both part and full closure of premises and for mandatory closure orders that were not legally binding. It also said there should be no reduction in a valid claim if the loss would have resulted from the pandemic anyway. These conclusions, and the addition of two more policy types to this category, means more policyholders can claim, and some will get higher payouts than previously offered;
- In relation to the trends clauses in particular, the insurers had made various arguments based on the geographical limits of cover in the “disease” and “hybrid” clauses, or the presence of an express “but for” provision in the trends clause, to argue that the policies would not cover loss caused by the national response. They said it was necessary to prove that the loss would not have occurred “but for” the occurrence of the insured peril. The Supreme Court said it was clear that Covid-19 fell within the coverage clauses for disease and hybrid clauses and that the “but for” test was not always determinative of causation. Moreover, the wider effects of Covid-19 cannot be used as reasons to reduce the amount of indemnity.
- The judgment will now be distilled into a set of declarations;
- FCA will issue policyholder FAQs and will look to finalise its draft guidance quickly. It is extending its consultation deadline (originally 18 January) to 22 January in respect of issues now addressed in the judgment.
FCA has also noted that insurers relied on a 2010 judgment in their submissions on causation and that the Supreme Court has now ruled this “Orient Express” case was wrongly decided. As a result, FCA says more business interruption policies will, more widely, be likely to respond to “wide area damage” such as floods or storms.