High Court backs FCA’s COVID-19 business interruption insurance claim case

Insurers will have to pay out claims on business interruption insurance policies amounting to hundreds of millions of pounds after a High Court ruling this week.

The Financial Conduct Authority (FCA) had brought the case, which argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in a representative sample of policy wordings did provide cover in the circumstances of the COVID-19 pandemic.

Many claimants had been denied a pay-out by insurers citing such clauses, with an estimated 370,000 business policy holders now expected to benefit from this week's ruling.

Commenting on this week's High Court outcome, Christopher Woolard, interim chief executive of the FCA, said: “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. 

“We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.

“Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.

“We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.”

The High Court’s ruling on business interruption insurance runs to 150-pages, although a summary document is available via website of FCA's legal representatives Herbert Smith Freehills.

The FCA said that the judgment states that most, but not all, of the disease clauses in a sample scrutinised in the face were found to provide COVID-19 cover. 

It also states that certain denial of access clauses in the sample provide cover, but added: “This depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.

According to the Financial Times, 21 wordings of different insurers were considered and in 19 of the wordings, the judges found in favour of the claimants, with Zurich and Ecclesiastical Insurance the exceptions.

Two insurers, Hiscox and RSA, have said the decision will cost them £200m to cover the claims.

Woolard said: “‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.

“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. 

“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process.

“As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”