High Court tentatively rules in favour of businesses in insurance claim case

The UK High Court has ruled in favour of thousands of businesses whose Business Interruption claims were turned down by their insurance firms due to the unforeseen nature of the Covid-19 pandemic, in a test case put forward by the financial conduct authority

Many in the hospitality industry will likely applaud the decision, as their businesses were brought to a halt when lockdown was imposed in March until they were allowed to reopen in July.

High profile cases include chef Raymond Blanc, whose insurance covered the Brasserie bar co group as well as his two Michelin-starred establishment, Le Manoir Aux Quat' Saisons. 

The gridlock prompted the creation of the Hiscox Action Group, which launched a £40m arbitration claim on behalf of 350 businesses whose Hiscox insurance claims were turned town on the basis that the company's property business interruption policies contained exclusions for the risk of pandemic.

What next?

While the judgment will bring welcome news for many, it did not say that insurers are liable across all of the 21 different types of policy wording considered by the Court, and each policy will still need to be considered against the detailed judgment to work out what it means for that policy.

Policyholders with affected claims can expect to hear from their insurer within the next 7 days.

In a statement, the FCA explained that the test case was not intended to encompass all possible disputes,nor does it determine how much is payable under individual policies, "but will provide much of the basis for doing so."

Christopher Woolard, Interim Chief Executive of the FCA, said:  "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."

"We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues. 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. 

"Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

"Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.  They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

"If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this."

No time for relent

Forensic partner at accountancy firm HW Fisher Rafi Saville called today's events "a landmark case and one of the most controversial legal issues resulting from the coronavirus crisis, adding that "today’s decision will affect over 400,000 small and medium businesses particularly in the leisure, property and hospitality industry who were forced to close their doors back in March.

"The ruling is likely to considered as a partial victory and it could have a ripple effect for the entire marketplace, with its conclusions likely to be applied to other affected claims. However, the decision today could possibly add to the confusion experienced by many business owners."
 
However, he added, “it is now crucial for these businesses to pay attention. Although the ruling may well be subject to an appeal, it becomes even more necessary for businesses to consult their insurance documentation with a view to understanding whether their Covid related losses will be covered. At this early stage, we understand that policies covering “notifiable diseases” will be covered under the ruling.”

UKHospitality chief executive Kate Nicholls tentatively celebrated the ruling - as there is still scope for the decision to be overturned in an appeal.

Initial output from High Court is that business interruption insurance policies with pandemic or notifiable disease clauses should be read as to cover COVID and claims should be met

— Kate Nicholls (@UKHospKate) September 15, 2020

Chef Peter Lloyd echoed the relief likely felt by many of his peers, thanking the Financial Conduct Authority for taking the test case to court.

A landmark decision in the FCA test case. Congratulations and Thank you to the @TheFCA for holding the Insurers accountable!!

— Peter Lloyd (@chef_lloyd) September 15, 2020