High Court judgment in the FCA’s business interruption insurance test case

FCA's Business Interruption Test Case Judgment Announced | Griffiths & Armour

The entire insurance sector has been waiting in anticipation for the High Court’s judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case. Insurance Brokers across the UK are now sifting through the detail and reviewing the findings of the judgment in order to understand the potential impact on their clients as well as their own position and whether their PI insurance will respond to any potential future claims.

Griffiths & Armour have been involved in many discussions behind the scenes to ensure that as your PI broker, we are putting your best interests at the heart of discussions, which includes advising on the BIBA Covid-19 working committee. We have been watching developments closely and provided our expertise and input to the Covid-19 BI claims guidance issued by BIBA and Weightmans in May this year. That document is a very useful touchstone on all of the key points to be aware of in relation to potential negligence claims against brokers.

Many of our insurance broking clients have been in contact to raise questions and of those, there are three that are most commonly asked from brokers looking for guidance. These are:

  1. What does the High Court ruling really mean ?
  2. Should we be considering any immediate actions ?
  3. What impact will it have on our own PI cover/claim?

1. What does the High Court ruling really mean?

Everyone should be clear by now that this is not a silver bullet which provides a definitive yes / no on all outstanding claims. In many areas the judgement appears to favour the policyholder and under certain non-damage business interruption insurance extensions there has been a clear move in the direction of claims being valid.

The full judgement runs to 150 pages and it considers a multitude of different policy wordings and, in some scenarios, the arguments put forward on behalf of the insurers have prevailed and cover may be denied.

The Court has considered BI clauses in three general types:

  • disease clauses,
  • denial of access clauses, and finally
  • clauses which are a combination of the two (hybrid).

Under these general headings there are detailed and nuanced considerations of each particular wording so again anyone hoping for instant clarity will be left dissatisfied.

2. Should we be considering any immediate actions?

The FCA has advised that any policyholder who has made a claim potentially affected by the decision should receive a communication from their insurer within seven days. The likelihood is that in many cases the communication will be a ‘holding’ email while the insurer in question reviews the judgement and considers its own individual position. Some may reiterate declinatures already issued.

As identified above it is by no means clear that all wordings will now respond and there is a strong likelihood that insurers will seek to appeal the decision. A hearing is scheduled within the next few weeks by which time insurers will have to decide on their next legal steps.

You should review how the principles set in the case will apply to your clients’ claims as well as liaising with key contacts at insurers. It will take insurers some time to review how the judgement affects them in terms of the policies reviewed in the judgement but also similar policies that weren’t included in the test case.

One major thing to consider is the need to identify any clients who were advised they weren’t able to make a claim but, due to the ruling, could potentially now have a valid claim. For example, many insurers quoted the Orient-Express Hotels case as a relevant precedent. By way of background this relates to an insured whose hotel was damaged by hurricanes and could not satisfy the “but for” test of causation being that even if the hotel had not been damaged, it would have suffered the same business interruption loss because of the devastation to the surrounding area. The relevance of that case has now been dismissed, potentially paving the way for a new group of clients to progress claims.

Once the response from Insurers becomes clearer it will be worthwhile putting together an internal document covering the common policy hurdles and issues to support client teams in responding to, handling and/or challenging any relevant claims.

Client expectations of course will need to be carefully and sensitively managed as the news breaks and further details are requested. As brokers, we will all do everything we can to move matters forward, but at this juncture we have to appreciate that this is within the context of a lengthy and detailed judgement covering 21 policies from 8 different Insurers.

3. What impact will it have on our own PI cover/claim?

From a brokers’ PI angle this would seem to be broadly positive news. If clients’ claims look like they’re going to get paid then the reason to pursue brokers largely falls away. There will be a handful of unusual cases where this ruling makes a broker negligence claim more likely but we would expect that to prove to be the exception rather than the rule.

There has been a significant spike in the number of broker PI notifications since March. In the overwhelming majority of cases the complaint relates primarily to the insurer’s position rather than directly to the fault of a broker in exercising reasonable skill and care.

The test case demonstrated that 2 weeks of legal argument from various QCs, followed by 2 months of deliberation by judges, could ultimately deliver a nuanced verdict. When viewed in this context it seems unlikely that a broker who failed to second-guess that result, in many cases when placing policies before Covid-19 was even known to exist, should be held to have acted negligently.

Specifically in relation to the recent judgement, Weightmans delivered a podcast which picks up and dissects all the main issues. You can listen to this podcast by clicking here.

For further guidance and advice on this live issue, please liaise with your usual Griffiths & Armour contact. Alternatively, you can click below to submit your enquiry.