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Business interruption insurance – UK Supreme Court rules against insurers

The UK Supreme Court has upheld the judgement on the Financial Conduct Authority’s (FCA) business interruption (BI) insurance test case. This step completes the legal process for impacted policies and means that many thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid.

The court addressed the issues arising on the appeals of the FCA with respect to six areas:

  1. The interpretation of “disease clauses”
  2. The interpretation of “prevention of access” clauses
  3. The question of what causal link must be shown between business interruption losses and the occurrence of a notifiable disease
  4. The effect of “trends clauses”
  5. The significance in quantifying business interruption losses of effects of the pandemic on the business which occurred before the cover was triggered
  6. In relation to causation and the interpretation of trends clauses, the status of the decision of the Commercial Court in Orient-Express Hotels Ltd v Assicurazioni Generali SpA (trading as Generali Global Risk)

Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented on the case:

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.

‘We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

‘As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties.”

How will this judgement impact Business Insurance Interruption cases in South Africa? Someone recently noted that business interruption claims are “notoriously” complicated, so expect tough negotiations. As Sasha Planting commented in Business Maverick this morning: “The final quantum of payouts will be determined following delicate negotiations between the insurance industry and its reinsurers on one side, and more brutal negotiations between the industry and its clients on the other. What is crystal clear is that there will be no winners.”

Click here to download the Supreme Court press release that includes the detailed reasons for the judgment.

Click here to read the FCA’s response.

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