COVID business interruption insurance update.
In my recent article "Legal action over business interruption insurance cover for Covid-19" [Link] I reviewed the claim that had been issued by the Financial Conduct Authority (FCA) seeking the Court's guidance on issues of interpretation of business interruption policies relating to the Covid-19 pandemic. Although the claim was only issued on 9 June 2020, the judgment has now been handed down (15 September: https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-judgment.pdf) . The early newspaper headlines refer to the judgment as being a lifeline to businesses who have had cover refused. However, the judgment is 162 pages long and runs to 580 paragraphs so it is simply not possible to distil the Court's findings into a nutshell.
The detail of the Court's ruling is specific to the wording of the particular 21 policies that were under consideration and is therefore limited in its scope. However, the findings on 2 common issues are considered to be generally good news for policy holders whose claims were rejected on those general principles.
The first concerns policies that cover losses resulting from a notifiable disease ie Covid-19. The insurers argued that cover was limited to the impact of a local occurrence of the disease within the workplace or within a defined territorial limit and that even when there was a local outbreak, losses that would have been caused by the wider pandemic in any event are not covered. In those circumstances the insured would have to show that the loss resulted from a Covid related business interruption that would not have arisen "but for" an occurrence of the disease within the business or its immediate locality. For example, on the insurer's interpretation, business closure due specifically to staff Covid illness might be covered but lost revenue due to general lock-down are not. The FCA argued and the Court agreed that this was not the correct approach because the "proximate cause" of the business interruption is the notifiable disease itself and any local occurrence is simply an indivisible part of the disease.
The 2nd general principle concerns cover for loss resulting from prevention of access to business premises by government/local authority imposed restrictions i.e. lock-down. The insurers applied a similarly restrictive argument that the interference had to be specific to the location of the affected business premises and that interruption due to general restrictions was not covered. The court found that although some policies are expressly restricted to a one-off emergency in the vicinity of the business, less specific cover for interruption due to government/local authority restrictions would include general, national or local restrictions and is not limited to individually targeted restrictions.
The Court will now hear further submissions from the parties about the specific declarations that should follow from its judgment and therefore it is not yet clear how it will be implemented. There are 2 further cautionary qualifications about the long term effect of the court's rulings. Firstly it is thought likely that the judgment will be appealed straight to the Supreme Court. Secondly a judicial review claim begins in the Court of Appeal next week challenging the legality of the lock down regime and if any business interruption is ultimately found to be due to unlawful government interference rather than the Covid-19 pandemic, the situation changes again.
These are just some early observations about the Court's judgment and further analysis will come over time. We will monitor the further progress of the claim and provide updates as the important issues are clarified. At the moment insurers will be feeling less confident about their grounds for refusing cover in some instances however each case will turn on its own specific facts as to the causes of the business interruption, the resulting losses and the wording of the specific policy involved.