FCA Business Interruption Case Ruling – What does it mean for business?
On Friday 15 January 2021 the UK Supreme Court handed down its judgment in the FCA’s COVID-19 non-damage business interruption insurance test case.
The Supreme Court substantially allowed the FCA’s appeals and dismissed insurers’ appeals of the High Court’s judgment. As a consequence of the ruling, insurers and policyholders alike turned their attention to revisiting their policy wordings to ascertain the extent to which the Supreme Court’s judgment affects claims presented to date.
Andrew Taylor, Head of Claims at Griffiths & Armour commented;
“If we look back in time, the potential effects of the SARS outbreak in 2002/03 alerted insurers to the risks that the rapid spread of a new disease might bring. As a result of this, many insurers rewrote policies to exclude events such as a global pandemic because ultimately, the insurance industry is based on assessing quantifiable risks. In its most simple terms, insurers aim to collect more in premiums from customers than they pay out in response to claims, using the funds generated through the pool of unaffected businesses to subsidise the pay-out to those affected. Thankfully the SARS outbreak did not spread to the extent that many thought it would, with 8,000 people reportedly contracting the virus worldwide. Many insurers therefore rewrote or excluded a global pandemic after the SARS outbreak, recognising quickly that it would not be possible to create the surplus of funds required to deal with claims generated following the emergence of a new contagious disease such as COVID-19”
This most recent ruling was deemed by many media outlets to have far reaching implications but was this actually the case and did the findings lead to mass pay-outs for policyholders?
In short, no. Despite the messages coming from the media suggesting the flood gates would open with claims being paid to businesses effected by losses during lockdown and the pandemic, the reality is very different. As early as March 2020, the UK’s Chancellor said that “very few businesses have the requisite insurance”. John Glen, the Economic Secretary to the Treasury also commented that “only 5% of businesses were estimated to have cover in place for non-specified diseases”.
The judgment itself only applies to particular wordings and certain clauses. The FCA has stated that the case ruling would affect a maximum of 370,000 businesses that held one of 700 policies issued by 60 insurers. When you consider there are almost six million businesses in the UK it supports the general consensus that few businesses will have a policy that will respond to a Covid-19 related business interruption claim and those that may respond still face challenges in proving that a loss occurred, quantifying the claim as well as navigating through sub-limits, policy excesses and locational clauses.
How are Griffiths & Armour advising clients on this matter?
Our approach and message to our clients has remained consistent before and after the ruling. We are here to support and advise you on exactly how your insurance programme may or may not be able to respond if a claim is being considered, be that in respect of a Business Interruption policy or any other policy. If you would like to discuss this subject or any other insurance matter with us, please get in touch with your usual contact at Griffiths & Armour or send us your enquiry using the link below.
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