The Financial Conduct Authority (FCA) the regulating body 59,000 financial services firms and financial markets in the UK, recognised early on in the crisis caused by the coronavirus pandemic that the controversy surrounding the business interruption clause liability needed a decisive answer to bring clarity to provide certainty for both the insured and the insurers.
Many business owners were significantly affected by the effects of the coronavirus pandemic and faced a sudden and unexpected halt to their commercial activities broadly arising from the infectious nature of the disease itself preventing the close contact of their clients, "disease clauses"or the measures taken by the government to limit the transmission of the coronavirus "denial of access clauses," resulting in an inevitable large number of claims relying on the business interruption clauses in their commercial insurance to safeguard their businesses. Equally inevitably the insurers strove to avoid liability in the face of exceptional circumstances and the volume of claims. The FCA felt that the only way to establish whether the business interruption clauses were valid and could be enforced was to seek a legal judgment. The FCA brought a test case against eight insurers selecting a representative sample of policy wording from their policies. Christopher Woolard, Interim Chief Executive of the FCA commented "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."
The High Court has handed down its judgment which is complex and runs into 150 pages dealing with the full range of issues. However, the decision is that the vast majority of the "disease clauses" in the samples presented do provide cover for the insured; with regard to the businesses affected by the government measures in response to the coronavirus pandemic "denial of access clauses" will depend on the particularly detailed wording of the clause together with the direct consequences for the business, for example, whether a mandatory closure order applied or whether the business was ordered to close completely. The judgment did clarify that the coronavirus pandemic and the government response could be regarded as a single cause in respect of the covered loss, which is a necessary requirement for claims to be paid, regardless of whether the policy itself does provide cover.
Nick McEwen, an associate in Giambrone's corporate and commercial team, commented "Whilst the judgment does not cover absolutely all possible disputes, it goes a long way to providing the desired clarity for both policyholders and their insurers." Nick further remarked "it should be noted that the judgment does not determine the amount payable under separate policies. However, it has eliminated the need for policyholders to individually resolve certain key issues with their insurers and provided clarity regarding causation issues." Giambrone's corporate and commercial team believes that there will still be a number of issues that are subject to dispute and urges the parties to employ mediation rather than litigation to resolve these issues.
The FCA's Christopher Woolard stated "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." Giambrone's corporate and commercial team point out that the judgment may well be appealed, however, that is not a bar for policyholders and insurers to attempt to negotiate a settlement before a potential appeal is heard.
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