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The FCA business interruption insurance Test Case — where are we now?

Significant progress has been made in progressing and settling valid BI claims which have been made as a consequence of the COVID-19 pandemic.

The much anticipated Supreme Court judgment determining the various appeals in the Test Case (“the Test Case”) was handed down on 15 January 2021. A summary of the decision.

However, the Declarations (which are a culmination of both the Supreme Court and High Court Judgments and which specify for each representative sample policy wording whether there is cover in principle for BI-related losses) were not published until 14 July 2021.

The Declarations

In many respects, the contents of the Declarations were unsurprising. Some of the Declarations remained unaltered from those published by the High Court — see Declaration 9 for example, which confirms (as it did originally) that the UK government will satisfy the representative sample policy wordings which refer to a public authority, a civil authority and the like.

However, before producing the Declarations, the Supreme Court received written submissions from the parties to the Test Case on the wording of some of the Declarations that were more contentious.

In respect of three of the Declarations, 17.4, 27.3 and 31, a general theme emerged from the submissions. For policyholders, the FCA sought to persuade the Supreme Court to include a non-exhaustive list of Government instructions/ measures that would satisfy the requirements of the insuring clauses under consideration. Certain insurers sought to oppose the inclusion of such a list and/or sought to persuade the Supreme Court that the Declarations should confirm certain Government instructions/measures that would not satisfy the insuring clause under consideration.

In each of these cases, the Supreme Court would not be drawn to conclude in the Declarations what specific measures (like the Prime Minister’s ‘stay at home’ instructions, instructions not to gather in public and the 2-metre distancing instructions) would or would not satisfy the requirements of the insuring clauses under consideration.

It can be appreciated that the Supreme Court did not want to produce Declarations that went beyond matters that had been determined in the judgment and which, ultimately, will turn heavily on the specific facts of the case. However, many may be disappointed by the result as it leaves key issues on coverage open for ongoing/future debate (as expressly referenced in the judgment). Whilst such uncertainty will undoubtedly make concluding some claims more difficult and time-consuming, the Test Case was not intended to resolve each and every coverage issue arising from the impact of COVID-19, and on every factual permutation.

The FOS’s role in the progression of BI claims

As claims are progressed and decisions issued by insurers, complaints to the Financial Ombudsman Services (FOS) will naturally increase. Many of the representative sample policy wordings were written for small businesses and the FOS will therefore have jurisdiction to hear many complaints which policyholders may have in respect of policy coverage decisions. The FOS has been working to clear the backlog of unresolved complaints and it has published some decisions concerning COVID-19 BI claims on its website.

The FOS has confirmed that it will consider the Supreme Court’s decision in the Test Case when assessing BI-related complaints. However, in line with its usual approach to complaints handling, it also states that “insurers should not only consider a strict interpretation of the policy terms but what is fair and reasonable in the circumstances – taking into account the particular unprecedented situation that the response to the virus has created”. Whilst as such it remains the case that FOS decisions on any given complaint will remain to an extent unpredictable, some key elements which can be taken from the decisions following the Test Case include:

  • When considering a policy that provided cover for a specified list of diseases occurring at the premises or within a 25-mile radius, the FOS decided that, where the list did not include COVID-19, cover would not be available even in circumstances when COVID-19 did not exist at the time the specified list was drafted.
  • When considering wording that provided cover for denial of access to the insured premises as a result of physical damage to the property, the FOS decided that COVID-19 did not amount to physical damage to an insured premises.
  • The FOS has considered policy wordings that provide cover for the occurrence of an infectious disease “at the premises”. The FOS has decided that such complaints have not been upheld and that, based on the specific facts of the complaints, cover is not available either because:
    • The reason for closure of the insured business was not the result of the occurrence of COVID-19 at the premises. The premises were not closed because someone at the premises was infected by COVID-19 at some point in time, but rather because of the effects of the Government’s business closure orders – as such, cover was not available.
    • Even if the premises were required to close due to the presence of COVID-19 at the premises, cover would be limited to a short period of closure to allow for deep cleaning to take place and would not attach to the long-term closure required by the Government business closure orders.

The decisions issued by the FOS in respect of ‘at the premises’ wordings reflect the FCA guidance as issued in the FAQ document released in January 2021, which suggested that such wordings might cover BI losses in some circumstances such as when closure of the premises is required to allow for a deep clean following an incidence of COVID-19 at the premises. Whilst FOS decisions are not binding on other complaints, the decisions made to date provide an indication as to the proposed treatment of BI-related complaints which cannot be resolved between insurer and policyholder.

Six months on — where are we now?

Since March 2021, the FCA has been publishing some of the data it has obtained from insurers as to the number of BI claims that have been accepted, the number of claims for which a decision on policy coverage remains to be confirmed and the payments that have been made (either interim or full and final settlements). The figures indicate that progress has been made assessing and concluding BI claims following the Supreme Court judgment, as hoped. Claims are being accepted, coverage decisions are being reached, and final terms agreed. The figures do however indicate that there has been a slowdown in the progress made since around May 2021. Why the slowdown? The simple answer is likely to be that the more straightforward claims have been resolved or will be soon; the more thorny matters will take longer.

However, it is clear from the data collated and released by the FCA that significant progress has been made in progressing and settling valid BI claims that have been made as a consequence of the COVID-19 pandemic. The number of claims being settled demonstrates the success of the Test Case and the benefit which has been provided to both the insurance sector and policyholders in providing clarity on key issues which would otherwise have progressed through the courts and/or been referred to the FOS separately.

It was always known and understood that the Test Case would not provide answers to all coverage issues in every situation and that many claims will be determined based on the specific facts of a policyholder’s business. Whilst the Test Case and the decisions being made by the FOS will continue to narrow the issues left open for debate, there is more work still to be done, and issues to be addressed.