Following the ongoing Covid-19 pandemic many businesses suffered significant financial loss and sought to rely on their insurance policies which covers for loss in the event of ‘business interruption’. Consequently, this resulted in a large numbers of claims being made against reputable insurance companies. The policies in question covered business interruption caused by infectious or notifiable diseases. Whilst some insurers accepted liability under the policy other insurers were reluctant to accept liability. This caused a lack of certainty and clarity within the insurance market. The Financial Conduct Authority the regulatory body of insurance companies commenced proceedings before the High Court of Justice as a test case on 9th June 2020. The aim was to seek clarity in respect of the relevant business interruption policy wording. The FCA selected a representative sample of policy wordings issued by eight insures who agreed to participate in the test case. The case was determined without live factual or expert evidence and on the basis of certain agreed facts and took place remotely via Skype and live-streaming pursuant to Schedule 25 of the Coronavirus Act 2020 on 20th July 2020.
In considering the wording of the policies it was also imperative from a legal perspective to consider the following key dates:-
- 3 March 2020: UK Government announces the UK COVID-19 action plan
- 5 March 2020: COVID-19 becomes a notifiable disease in England/Wales
- 11 March 2020: WHO declares COVID-19 to be a pandemic
- 16 March 2020: UK Government directs people to stay at home, stop non-essential contact and unnecessary travel, work from home where possible, and avoid social venues
- 20 March 2020: UK Government directs various categories of business to close, such as pubs, restaurants, gyms etc (given legal effect by Regulations coming into force on 21 March)
- 23 March 2020: UK Government announces lock-down involving closure of further businesses including all non-essential shops and restrictions on individual movement (given legal effect by Regulations coming into force on 26 March).
Following the UK Governments announcement some businesses were ordered to close whilst others were permitted to stay open. The FCA and eight insurers agreed to categorise the policyholder businesses by reference to how they were impacted by the recent regulations enforced. The categorisation is as follows:-
Category 1: businesses listed in Part 1 of Schedule 2 to the 26 March Regulations, such as cafes and restaurants. This category was affected by Regulation 2(1) of the 21 March Regulations and Regulation 4(1) of the 26 March Regulations.
Category 2: businesses listed in Part 2 of Schedule 2 to the 26 March Regulations, such as cinemas and theatres. This category was affected by Regulation 4(4) of the 26 March Regulations. It should be noted that this list expanded the earlier list in Part 2 of the Schedule to the 21 March Regulations, that subset being affected by Regulation 2(4) of the 21 March Regulations.
Category 3: businesses listed in Part 3 of Schedule 2 to the 26 March Regulations, such as food retailers and pharmacies. This category was excluded from the scope of Regulation 5(1) of the 26 March Regulations.
Category 4: businesses offering goods for sale or for hire in a shop, or providing library services, such as retail stores, not listed in Part 3 of Schedule 2 to the 26 March Regulations. This category was affected by Regulation 5(1) of the 26 March Regulations.
Category 5: businesses not mentioned in the 21 March Regulations or the 26 March Regulations at all, including professional service firms such as accountants and lawyers, as well as construction and manufacturing businesses.
Category 6: businesses providing holiday accommodation, which were affected by Regulation 5(3) of the 26 March Regulations.
Category 7: places of worship, which were affected by Regulation 5(5) of the 26 March Regulations, together with nurseries and schools.
Policy wordings considered
The parties agreed a sample of standard form business interruption policies for consideration in the case. A total of 21 lead policies were considered. The relevant provisions in the policies 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 Judgment is heavily detailed and complex and we do not purport to cover all of the issues raised in this article. The judgment should be carefully reviewed for such detailed analysis. We highlight the main summary of the judgment as follows:-
- The FCA argued that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings did provide cover the Covid-19 pandemic. The judgment says that most, but not all, of the disease clauses in the sample provide cover.
- The judgment also states that policyholders would be able to rely on certain denial of access clauses depending on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely. Please refer to the categories above.
- The test case has also most importantly established that the Covid-19 pandemic and the Government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover.
Should you have any queries regarding any of the above or you are seeking clarification as to whether your policy wording covers such events, please do not hesitate to contact Simon Braun on 01582 466163 or by email at email@example.com