The 162-page judgement, which was handed down this morning (15 September), follows a test case brought forward by the Financial Conduct Authority (FCA) against eight insurance firms including Hiscox and QBE to determine whether their business interruption policies should pay out on claims related to the Coronavirus pandemic.
While the ruling has been described as a win for policyholders, it does not mark the end of the battle, with insurers expected to now appeal the judgement.
Law firm Mishcon de Reya, which is currently representing the Hiscox Action Group in an arbitration claim against Hiscox for non-payment of business interruption insurance, has described the case as a ‘resounding victory’.
“Overall, this represents a positive outcome for most Hiscox policyholders who we represent. We will continue to press the claims of that group of 400 via the arbitration process that is underway vs Hiscox,” the firm said in a statement.
From a sample of 21 policy wordings that the FCA previously said captured ‘the majority of the key issues that could be in dispute’, the judgement ruled that most, but not all, of the disease clauses provide cover.
It also says that certain denial of access clauses in the sample provide cover, but this depends 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.
The test case has also clarified that the Covid-19 pandemic and the Government and public response were a single cause of the covered loss, which, the FCA says, is a key requirement for claims to be paid even if the policy provides cover.
“This a landmark case and one of the most controversial legal issues resulting from the Coronavirus crisis,” says Rafi Saville, forensic partner at accountancy firm HW Fisher.
“Today’s decision will affect over 400,000 small and medium businesses particularly in the leisure, property and hospitality industry who were forced to close their doors back in March.
“The ruling is likely to considered as a partial victory and it could have a ripple effect for the entire marketplace, with its conclusions likely to be applied to other affected claims.”
The FCA and defendant insurers, which also include Arch Insurance, Argenta, Ecclesiastical, MS Amlin, RSA and Zurich, are now considering the judgment and what it might mean in respect of any appeal.
Any applications to appeal will be heard at a consequentials hearing before the High Court.
The FCA is seeking to have a consequentials hearing as early as possible.
Saville warns that the decision today could possibly add to the confusion experienced by many business owners.
“It is now crucial for these businesses to pay attention,” he says.
“Although the ruling may well be subject to an appeal, it becomes even more necessary for businesses to consult their insurance documentation with a view to understanding whether their Covid-related losses will be covered.”
Christopher Woolard, interim chief executive of the FCA, describes the ruling as a ‘significant step’ in resolving the uncertainty being faced by policyholders.
“We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues,” he says.
“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.
“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.
“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process.
“As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”
The FCA’s aim in bringing the test case was to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible.
It says its role was to put forward policyholders’ arguments to their best advantage in the public interest, and that in total 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.
Hospitality insurance broker NDML and the Night Time Industries Association (NTIA) have both described the judgement as an ‘invaluable win’ for policyholders.
“This verdict is just what we’ve been waiting for,” says Michael Kill, CEO of the NTIA.
“The night-time economy has been one of the hardest hit by lockdown measures during the pandemic, and many businesses are grassroots, family owned venues, that are cultural cornerstones of towns and cities across the UK.
“The enforced lockdown since March has created unthinkable financial turmoil and stress for many business owners.
“This verdict gives some reassurance that these businesses will get the payments they deserve to help them survive this period.”
Simon Mabb, managing director of NDML, echoes those sentiments.
“We’re so pleased that these months of hard work have paid off for our clients,” he says.
“This is the result we all knew was the right one from the beginning, and it’s frustrating that it’s taken so long to reach this point.
“But it’s reassuring to know that we can now give some certainty back to the venues and businesses that have had their lives put on hold for so long.”