Yesterday a judgment was handed down in the hotly anticipated and expedited COVID-19 business interruption insurance test case, Financial Conduct Authority v Arch and others. In a welcome result for insurance policyholders, principally small and medium-sized businesses, the High Court held that a large number of sample policy wordings would provide business interruption cover for policyholders affected by the ongoing COVID-19 pandemic, as for them not to would result in "highly anomalous results". The significance of this case cannot be overstated, with the FCA's estimation that the outcome could impact 700 different types of policy across 60 insurers and 370,000 policyholders, valued in total at around £1.2bn.
The FCA itself has noted that today's outcome does not necessarily infer liability for the insurer defendants across the sample wording in all 21 policies provided by eight insurers (including Zurich, Ecclesiastical, RSA and Hiscox). Whilst the Court broadly sided with the FCA, the judgment handed down is complex and nuanced. The Court noted that most, but not all, of the policies would provide cover in the context of the COVID-19 pandemic, but this is also subject to how different businesses were affected by Government actions (i.e. the extent to which businesses were required to close or cease operations). For detailed analysis around the specific wording of policies, a thorough review of the judgment is recommended and each relevant policy must be examined against the judgment.
The FCA has suggested that should policyholders have a policy which they are seeking to rely on that contains either (i) disease wordings, (ii) prevention of access/public authority wordings or (iii) hybrid wordings in relation to a notifiable disease, insurers should be in contact directly to inform policyholders of next steps. In the meantime, however, policyholders with these categories of wording should now consider claiming on their policies (to the extent they have not already) with a certain degree of comfort that, if their claim is rejected, there are now other potential avenues for recourse. For policyholders with existing pending claims, it may be prudent for them to contact their insurers in order to expedite the recovery process.
This decision may be subject to an appeal from the defendant insurers. The FCA and defendant insurers have agreed that any appeal will be sought on an expedited basis, including the potential for a 'leapfrog' directly to the Supreme Court. However, given yesterday's ruling, insurers may be more willing to discuss immediate settlement of claims in lieu of waiting for any potential appeal and further delay, given that the judgment in this case arrived four months after the hearing.
Read the FCA press release here.
This decision will not only affect insurance claims but will also have an impact on the drafting of force majeure clauses in commercial contracts.
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.
