FCA Test Case: Response of non-damage business interruption extensions to COVID-19 losses
Supreme Court Decision: Update
19 January 2021
The Supreme Court judgment in the FCA Business Interruption Test Case was published on Friday 15 January 2021. The full judgment together with a copy of the FCA’s press release is available here.
We are reviewing the content of the judgment in detail however, in short, the Court substantially allowed the appeal of the FCA and dismissed the insurers’ appeal.
The updated key takeaways for policyholders are as follows:
1: Notifiable Disease: cover will be available under all of the Notifiable Disease extensions considered by the Supreme Court for losses caused by the wider COVID-19 pandemic. This outcome extends to the QBE wordings under consideration, which had been given a narrower application by the High Court.
2: Non-Damage Denial of Access: these extensions were construed more widely than they had been by the High Court in a number of respects, in particular:
a. the public authority action necessary to trigger the cover need not necessarily have the force of law (such as government guidance or announcements); and
b. the prevention of access to or inability to use premises need not be absolute meaning that closure of a discrete part of a business could be sufficient to trigger cover.
3: Causation and trends: consistent with the outcome of the High Court judgment, the Supreme Court did not find favour with the narrow arguments around causation and trends clauses advanced by insurers. In practical terms, on the wordings in issue, the findings of the Supreme Court will make it difficult for insurers to limit recovery on the basis that losses would have been caused in any event by the wider COVID-19 pandemic.
4: Orient Express: the Supreme Court determined that the case of Orient Express Hotels v Generally was wrongly decided and that it should be overruled.
Next Steps
While the Supreme Court judgment is positive for those policyholders whose policies are directly in scope, it will not have identical ramifications for each client or each claim. It remains the case that not all policies will respond to COVID-19 BI losses. Please bear with us while we work through the implications of the decision and commentary set out in the judgment.
In the meantime, the FCA has advised that it expects insurers to move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.
On this basis, policyholders who anticipate a recoverable claim should prepare and present a fully quantified claim as soon as possible.
Additionally Protect will be communicating directly with those policyholders which either have a claim logged with an effected Insurer OR that may now have a right to make a claim.
If you have a queries or need further information please contact us directly.
Protect Commercial Team.
