In a landmark decision handed down on 15th September 2020, the High Court has ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic are entitled to be indemnified by their insurers and that, subject to the limits of their policies, this compensation should return them to the position they would have been in had the pandemic never happened.
The FCA had decided earlier this year that, due to the uncertainty in the market, it would seek court declarations as part of a fast-tracked test case, aimed at resolving the contractual uncertainty around the validity of many business interruption claims. The Court considered 21 lead sample wordings from eight insurers and although different conclusions were reached in respect of each wording, the Court found in favour of the FCA on the majority of the key issues.
Insurers’ had declined to meet claims for losses caused due to not being able to trade because of the COVID-19 pandemic, even where businesses had purchased extensions to their policies that provided cover if trading is disrupted by, for example, an order from a public authority for a business to close because of an outbreak of an infectious disease. The position of insurers was that their policies were not intended to cover pandemics and were limited to local or isolated disease outbreaks. Whilst the terms of the precise policy wordings will be relevant, the Court rejected the insurers’ arguments that this must mean that only a local outbreak is covered.
According to FCA estimates, the findings could affect as many as 370,000 policyholders and each successful claim could potentially run to tens of thousands of pounds.
The FCA said policyholders with claims could expect to hear from their insurers shortly. However, due to the fact that the decision might be subject to appeal, the final resolution of the case may not be until later this year or even early 2021. In fact, the parties have already agreed that they will explore the possibility of a ‘leapfrog’ appeal directly to the Supreme Court without the need to be first heard by the Court of Appeal.