The Financial Conduct Authority (FCA) brought claims against eight insurers over their refusal to pay out on claims by businesses decimated by the coronavirus pandemic. It has succeeded in its claims as the High Court has now found in favour of policyholders in a landmark test case intended to clear up whether businesses have valid insurance claims related to Covid-19.
Any determination on the availability of cover will be made on a case by case basis but the Court considered some general issues that will apply to most policies including the interpretation of disease clauses, denial of access clauses, and the evidence of occurrence of disease which will be required.
Many business interruption policies cover the occurrence of a notifiable disease within the vicinity (or a specified radius) of the insured premises. In this case, the insurers argued that cover would only be available where there was a local occurrence of a notifiable disease rather than a widespread pandemic such as Covid-19.
The Court did not accept this and found that most, though not all, of the disease clauses considered as part of the test case would provide cover. The court found that cover would be available when there were diagnosable (rather than diagnosed) cases of a disease in the relevant policy area (which is generally within a specified radius of the business premises or within the vicinity of the premises) but that cover ought not to be restricted to outbreaks within the policy area.
For clauses which required the occurrence of disease within a specified geographical radius of the insured premises (e.g. 25 miles) it was found that it would be sufficient if there was one case of disease within that radius, irrespective of the prevalence of disease more widely. For policies which specifically referred to the requirement for there to be an occurrence of a notifiable disease within the “vicinity” of the business premises, the court found that “vicinity” should be interpreted broadly and could potentially cover England and Wales.
Denial of Access
The Court also considered policies which included wording to cover circumstances where access to business premises had been prevented due to action taken by the public authority or government.
The Court adopted a more restrictive interpretation of these clauses and found that cover under these clauses would generally only be available where action was taken by the authorities to respond to localised incidents. Further, the Court formed the view that prevention should be interpreted as meaning that it had become ‘impossible to carry on the existing business because of some lawful requirement or government advice’. Businesses which had to close their premises but could still partially operate (e.g. by moving their business online or starting a takeaway business) would most likely not be covered.
In each case it will be necessarily to carefully consider the policy wording, the steps taken by the local authority and/or government and the effect of those steps on access to the business premises and the operation of the business generally.
Proving Occurrence of Disease
The burden will be on the policyholder to prove that there was an occurrence of the disease as required by the policy wording. However, evidence such as NHS deaths data and details of positive cases ought to be capable of being used to evidence the presence of the disease in the insured area. The Court found that the proof of prevalence does not have to be absolutely precise.
The findings in this test case will potentially impact upon tens of thousands of businesses who were forced to close their doors amid the coronavirus lockdown who may now be eligible for pay-outs under their business interruption policies. The FCA brought the claim to help achieve clarity on insurance pay-outs due to the unprecedented circumstances caused by the Covid-19 pandemic. We understand that an application to appeal this decision to the Supreme Court has been filed and that any appeal will be fast-tracked. We will keep our readers up to date on the appeal decision and the impact on their businesses.
If there are any queries arising from the above, please do not hesitate to contact our Litigation team on 01228 552600 or 01524 548494.