As Covid-19 put the country into lockdown in March 2020, many businesses were quick to locate their business interruption insurance policies with a view to establishing whether they were covered. For many, they found they were not.
However, in September 2020 a new legal ruling may mean businesses were covered after all.
Sara Beaumont, Director at WHN Solicitors, takes a look at this new legal ruling and what it means for some of these affected businesses.
A legal test case
On September 15, judgment was handed down in The Financial Conduct Authority v Arch and Others [2020] EWHC 2448.
This was a test case brought by the Financial Conduct Authority (FCA) by selecting a representative sample of policy wordings issued by eight insurers. According to the FCA, 370,000 policyholders may be affected by the case.
The eight insurers who agreed to be part of the test case were:
- Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc, and Zurich Insurance Plc.
The case considered 21 different policy wordings which covered the majority of disputes between the insurers and their policy holders. These generally fell into three categories:
- Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
- Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
- Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.
The Disease wordings
The insurers argued that cover would only be provided where there was a local outbreak of COVID-19, and not a wider national outbreak as occurred here.
The FCA argued that this was incorrect and that where an outbreak in the policy area was indivisible to the outbreak as a whole then the cover could not be limited to a local outbreak. Alternatively, they argued that there were many different effective causes as a result of the disease occurring in many individual places.
The court agreed with the FCA, on the basis that cover was triggered when there were diagnosable, cases of the disease in the relevant policy area. Cover was not restricted to outbreaks wholly within the insured area. The wordings did not require that the disease should only occur in the insured area, only that there was a notifiable disease that had come close to the business premises.
For those policy wordings that included the requirement that the occurrence of a notifiable disease had come within the ‘vicinity’ of the business premises, vicinity was taken to be England and Wales.
Prevention of access / public authority wordings
The court’s findings in relation to these wordings is likely to provide less comfort to policyholders, as these clauses were to be construed more restrictively than the majority of the disease clauses.
These clauses will need to be closely considered, and the policy wording carefully analysed in light of the steps taken by the authorities and the effect that any such steps had on the policyholder’s business premises.
Hybrid wordings
As the name would suggest, these clauses are a combination of disease wording and prevention of access/public authority wording. In line with the points mentioned above, the court allowed a wider interpretation of the ‘disease’ wording but a narrower application of the ‘prevention of access’ requirements.
Therefore again, close examination of the particular terms of the clause will be necessary to determine how the policy will be applied.
What should businesses do next?
Any business which attempted to make a claim on their business interruption insurance as a result of lockdown, and was refused, should now re-visit their policy.
Those businesses whose insurers were a party to the test case should be hearing from them within the next seven days.
It should be noted that it is open to either the FCA or the insurers to seek to appeal the Judgment.
Sara Beaumont is a director based in WHN Solicitor’s Bury office. She is part of the dispute resolution department, and among her role helps businesses with a wide range commercial disputes. To contact Sara call her on 0161 761 8073 or email her at sara.beaumont@whnsolicitors.co.uk
