The High Court in England and Wales has today handed down its judgment in the Financial Conduct Authority’s (FCA) business interruption insurance test case The Financial Conduct Authority v Arch & Ors. The FCA has won what is being described as a ‘significant victory’ on behalf of holders of business interruption insurance

The 160 page judgment found here, will bring welcome news to what the FCA estimates is as many as 370,000 business owners who are seeking pay-outs under their policies following the coronavirus pandemic.

Following expedited proceedings, the judgment brings highly anticipated guidance on the proper operation of cover under certain non-damage business interruption insurance extensions.

Not only will this judgment have implications for businesses in Northern Ireland, the eyes of the insurance sector and businesses throughout the Republic of Ireland will be firmly fixed on the potential repercussions of this decision as outlined in our previous commentary.

In the Republic of Ireland, a number of test cases have been taken by publicans against FBD Insurance and are due to be heard in the Irish Commercial Court in October 2020. Whilst this judgment will not be a ‘binding precedent’ in the Republic of Ireland, it is certainly shall be of interest and possible help to the High Court in Dublin

The Judgment

A total of 21 lead policies were considered and relevant provisions in the policies broadly fell into three categories:

• Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
• Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
• Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.

Given the sheer volume of policy wordings considered over the eight-day hearing, the Judgment is extremely detailed and businesses should examine and take advice upon the particular policy wording relevant to them.

The implications of the judgment

A key point of note from the judgment, and a lifeline to some business owners is that the Court provided clarification on the need for the policyholder to prove that an outbreak occurred within the relevant area within their policy. Something which insurers repeatedly sought to argue.

Clarification was also given on the requirement for individuals to be ‘diagnosed’ with Covid-19 and symptomatic within the relevant policy area, for cover to be granted.

Much of the case centred around what constitutes ‘interruption’ with some insurers taking the extreme position that it meant a physical obstruction or impossibility or alternatively, a complete cessation of the business. The Court largely held that “interruption” did not require a complete cessation of the business, but was intended to mean “business interruption” generally, including disruption and interference with the business.

Huw Evans, director general of the Association of British Insurers, said:

“Insurers have supported this fast-track court process led by the FCA to help bring clarity for customers and we welcome the speed with which the court has delivered a ruling.

“The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.

“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events.”

Coronavirus has caused and is continuing to cause substantial loss and distress to businesses and many are under immense financial pressure to stay afloat. This judgment is being viewed as a lifeline by many business owners, particularly those with wordings similar to those considered in the test case.

Importantly, the Court did not find that the 8 defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court.

Instead what the Court did was provide guidance as to how business interruption insurance wordings should operate in the context of the Covid-19 pandemic which has brought such a devastating effect on businesses in the UK and Ireland.

Next Steps

At Lacey Solicitors, we are assessing this judgment in detail and are working closely with insurers, brokers and their policyholders both in Northern Ireland and the Republic of Ireland to determine whether the facts of their individual circumstances satisfy the requirements of the policy wordings in establishing cover.

Business interruption claims will remain complex to assess and quantify and whilst this case is of immense benefit, it is not a silver bullet. The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. The judgment does not determine how much is payable under individual policies but will provide much of the basis for doing so.

Clearly time will be needed to fully digest the judgment both by insurers and their policyholders.

The next steps for business owners will be to;

• Speak to their insurers or legal representatives and allow them to read the judgment in line with their policy to see how the principles laid down by the court applied to their particular policy wording, either directly, or indirectly.
• Consider what additional issues will be needed to establish and prove a valid claim bearing in mind that the judgment considered 21 lead sample wordings from eight insurers and reached different conclusions for each.

The FCA and insurers are considering the judgment and what it might mean in respect of any appeal. Any applications to appeal will be heard at a consequentials hearing before the High Court. The FCA is seeking to have a consequentials hearing as early as possible.

The FCA and 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. It is widely anticipated that any appealing party will issue a ‘leapfrog’ appeal directly to the Supreme Court, Court to expedite the final decision on this crucial case.