The Supreme Court is still considering the Financial Conduct Authority's (FCA) test case regarding the validity of business interruption insurance policies wordings, with a decision to the crucial issue now promised in the New Year.  The FCA clearly recognises that many businesses are suffering severely due to the closure or reduction of their ability to trade due to the coronavirus.  The announcement that more areas, including London, are to incorporated into the tier three bracket of restrictions amplifies the urgent need to know whether they can make claim on their commercial insurance policy's business interruption clauses.  In order to assist businesses to make their claims, the FCA has produced guidance, based on the initial judgment at the High Court, to bring clarity to all and enable businesses to draft their claims and submit as soon as possible, once the Supreme Court's decision is known.

The High Court provided confident guidance for the interpretation of the approximately 700 policy wordings that were reviewed. It was found that out of the 21 policy types considered, 12 were found to have the potential to provide the cover required under business interruption clauses arising out of the coronavirus pandemic, nine were found not to apply.  The Supreme Court is considering some aspects of the High Court decision under the current appeal, the FCA guidance addresses aspects that are not under appeal.

Nick McEwen, as an associate in the corporate and commercial litigation team, explains "the guidance can be relied on immediately as it only provides information on aspects of the FCA test case decision that are not under appeal, so businesses can begin the process for making a claim under the business interruption clauses of their commercial insurance policy." He further commented "the FCA Guidance is welcomed as it provides clarity to businesses and insurers on what evidence should be regarded as acceptable, removing the potential for any delaying tactics on the part of the insurers"

The guidance explains the types of evidence and methodologies which the policyholders can use to support their claim.

A Brief Outline of the Guidance

For Policyholders  

Many of the policies require evidence of the presence of the infectious risk, (in this case Covid 19), in the vicinity of the business premises. Policies vary between insurers as to whether they require the presence of the disease within a specified distance, zone or radius from the business premises which the FCA names as the Relevant Policy Area (RPA). The first step is to establish whether your policy requires the occurrence of a notifiable disease with or without specifying the RPA, if this is the case the following types of evidence can be used to demonstrate the specific evidence required:

  • Media reports from well-regarded sources of cases at a care home, hospital, restaurant, school or other business in the relevant RPA.
  • Statistics drawn from NHS England data and that provided by NHS Hospital Trusts on deaths from Covid -19.
  • Office of National Statistics (ONS) death data which is compiled on a weekly basis which will publish information on deaths where the death certificate attributes the death to Covid-19.
  • Information from Local Authorities
  • UK Government records the number of daily lab-confirmed positive tests of Covid-19 in a particular nation, region.  Reported Cases of Covid-19 help to prove the presence of Covid-19 in an RPA,

A policyholder must then clarify the actual extent of the RPA whether it is one mile or 24 miles from the business premises.

For Insurers

The Guidance also provides direction for the insurers and any assessment of the evidence submitted by a policyholder required by the terms of their commercial policy to support their contention that Covid-19 was present in the RPA, should be considered in a fair and reasonable way. Also, insurers are reminded that where a policyholder has provided persuasive evidence in accordance with the FCA guidelines it should either be accepted or counter-evidence should be submitted. Furthermore, they should be mindful of the fact that FCA considers that fair claims handling means that:  a) the counter-evidence submitted by the insurer will need to be clearly more cogent than the policyholder's evidence in order to reverse the burden of proof back onto the policyholder and b) a clear explanation will be required to be provided by the insurer to the policyholder with regard to the basis on which it considers that the policyholder's evidence does not discharge the burden of proof in relation to the minimal requirements of the policy and that its counter-evidence is more robust.   

The FCA indicates to the insurers that if one policyholder submits sound convincing evidence demonstrating that Covid-19 was present in a designated RPA the insurer should apply that evidence across all policies that relate to that RPA and not require each policyholder to submit the same or similar evidence as that is deemed to be unfair when the insurer is in possession of clear evidence that the coronavirus was present.  Insurance intermediaries assisting insurers assess business interruption claims should have regard to this guidance in the same way as insurers.

The lawyers in both the insurance litigation and corporate and commercial litigation teams urge policyholder s to create a draft application under the terms of the business interruption clauses with an experienced insurance lawyer so that it can be presented as soon as it is possible to do so to enable them to be as far as possible at the front of the queue when the Supreme Court judgement is finally delivered. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.