Business Interruption insurance test case at the Supreme Court – a quick guide

The Supreme Court will today (16^th November) begin to hear the appeals in the Business Interruption test case brought by the FCA. The hearing is due to last for four days, with the judgement expected to provide clarity for thousands of policy holders who have suffered COVID-19 related losses.

The expedited appeal to the Supreme Court follows the judgement from the High Court which was handed down in September. The judgement was largely seen as a success for policyholders, and while the majority of the issues being appealed are driven by insurers the FCA is also appealing parts of the judgement where it was unsuccessful.

What’s the Business Interruption test case appeal about?

The FCA raised a test case in the High Court to obtain a series of declarations regarding whether certain Business Interruption policy wordings should respond to COVID-19 losses.

It is not possible for the court to consider each and every different policy wording in the market, and those policies under the spotlight are considered by the FCA to be the most common and contentious clauses.

For those who have similar but slightly different policy wordings, the intention is this litigation will provide sufficient guidance that most coverage disputes can be unlocked.

What the appeal isn’t about

It is important to note this litigation is about insurance policies with “non-damage” Business Interruption cover.

The Supreme Court is not being asked to determine whether a policy which requires “damage” to a premises should pay out.

The majority of Business Interruption policies were written on that basis and the FCA does not expect these policies to pay out.  That view is consistent with a judgement from the High Court last month where a creperie owning insured failed in its case against Allianz.

The Business Interruption clause in question required accidental loss, destruction or damage to property. Neither the losses resulting from the business closure during lockdown nor the loss or destruction of stock as a result of the closure were recoverable under the terms of the policy.

What are the key Business Interruption issues - and will it affect your policy?

There are several grounds of appeal lodged by the FCA and various insurers.

The most significant battlegrounds include:

• Whether prevention of access wordings are only triggered by complete closure of a business. This will be relevant for policyholders who pivoted to trade despite the lockdown, but still suffered losses.
• If only the imposition of legally binding prohibitions can satisfy certain policy triggers such as “enforced closure”.
• If there was a downturn in the turnover of a business due to COVID-19 before the insured peril (e.g. denial of access) was triggered, whether it is appropriate to take this into account when calculating the level of pay-out.
• Whether the test of causation be satisfied by characterising the relevant event (e.g. the occurrence of the COVID-19 within a specified area) as being “part of” the wider COVID-19 pandemic. Insurers argue that many losses would have been suffered even had there not been a local outbreak due to the wider restrictions imposed by the pandemic.

Where do we go from here?

Businesses which have insurance claims riding on the outcome of the test case should not have too much longer to wait.

Where the Supreme Court rules in favour of the FCA, policyholders benefiting from the relevant (or similar) policy wordings should have their claims dealt with by insurers. And, of course, vice versa.

Although the Supreme Court should unlock the key coverage issues, there may remain other matters to be resolved for individual claims including the quantification of losses or factual evidence being provided to satisfy the policy terms.

The likely deluge of claims can be expected to put a strain on the resources of insurers and loss adjusters which may affect the turnaround time.

We will be providing further updates on how the Supreme Court appeal unfolds. Watch this space!