For some businesses, post-COVID survival could depend on whether their business interruption cover responds to the pandemic.
That question has now been answered, to some extent, following the High Court judgment in the Financial Conduct Authority's test case on business interruption dated 15 September 2020.
With the decision running to some 162 pages, key stakeholders now need meaningful guidance on what the decision might mean for them and the practical steps that can be taken. Read on for our key points to consider; and complete our sixty second survey to share your thoughts.
Will insurers have to pay out?
In many cases, yes. However there are important caveats: (1) the test case looked only at a very small proportion of the vast number of different policy wordings in the market; (2) there are numerous exceptions which the High Court confirmed can exclude cover; and (3) an appeal against the decision could be pursued, with the parties having actively preserved the opportunity to do so.
As things presently stand, the wording of each policy and the policyholder's particular circumstances will have to be carefully considered before a clear view can be taken in any single case. Businesses operating throughout the UK may see varying results given that different lockdown rules have applied in each of the four nations and their cities/regions at different times.
What should businesses do?
- Follow the insurer's claims process to the letter;
- Ensure all obligations imposed by the policy have been met by the business; and
- Be able to demonstrate any losses sustained, through measuring and documenting the impact upon the business.
If a business has any doubt about whether these action points have been met, urgent professional advice should be sought from an insurance broker or solicitor.
What will happen next?
The FCA called for insurers to communicate with affected policyholders within just 7 days of the decision.
The FCA is separately seeking to agree elements of the judgment with the eight insurers who participated in the test case, with a view to determining which small businesses are paid, and how much. No doubt any agreement reached would factor in discussions regarding claims by larger businesses. Some insurers are being publicly urged to respond to claims in certain sectors.
Should negotiations breakdown, the parties have now been granted leave to appeal, either to the Court of Appeal or via 'leapfrog' appeals directly to the Supreme Court (though it too would also have to give permission for leapfrog appeals to be heard).
Therefore although many insurers will not yet have been able to make final decisions on whether they will pay some or all claims, they should be updating affected policyholders on the claims process.
What other issues do businesses need to consider?
- Future Cover
The availability and terms of future business interruption insurance cover will need to be carefully considered, especially for those policyholders who are due to renew. Insurance brokers will be looking very carefully at proposed wordings and advising policyholders on how best to protect their business against further disruption – COVID related or otherwise.
- Exposure to other risks
Businesses should aim to further protect their cashflow by examining their claims defensibility. History shows that economic uncertainty inevitably leads to an increase in claims and complaints by customers and employees. In 2020, potential claimants across the UK have a better chance of funding claims than ever before, with recent legislative changes in Scotland aimed at facilitating access to justice in line with other parts of the UK.
Being able to demonstrate regulatory compliance will be key to resisting claims or complaints and ensuring that any relevant insurance cover is engaged.
What are your views?
To share your thoughts, find out more and to help us provide further relevant comment on the issues that matter to you, complete our sixty second survey on business interruption insurance.