On 2 November 2020, the Supreme Court granted permission to the FCA, six defendant insurers and one intervening policyholder action group to appeal the recent High Court decision which largely ruled in favour of policyholders hit by the pandemic.
The High Court’s decision on 15 September 2020 found that the majority of the 21 policy wordings should be interpreted in favour of policyholders. This potentially paved the way for payouts to an estimated 370,000 small businesses forced to close during lockdown.
However, following that decision, six of the eight insurers whose policy wordings were considered applied for permission to appeal as did the FCA. Permission has now been granted and the appeal will be heard by the Supreme Court on 16 November 2020 and is expected to run for four days.
The FCA’s appeal is focused on the so-called trends clauses, aspects of the prevention of access wordings, and certain disease wordings where, exceptionally, the High Court limited cover under some policies to local-only outbreaks of Covid-19. The insurers’ appeal is also concerned with the disease and prevention of access clauses found in the business interruption sections of policies.
While the grounds of appeal are extensive and complex, the five core areas of appeal are summarised below.
Much of the High Court analysis - and presumably the Supreme Court’s in due course - hinges on the Orient Express Hotels Ltd case referred to above. In that case, the Orient Express Hotel in New Orleans claimed against its business interruption policy following storm damage arising from Hurricane Katrina, which resulted in the closure of the hotel for two months in 2005.
The High Court and Court of Appeal concluded that the hotel would have suffered business losses even if it had not been damaged as the city in which it was based was forced to shut down following the hurricane. As a result, the hotel was treated as if it had been an undamaged hotel in a damaged city. On that basis, the hotel recovered only a limited amount under its policy, rather than the $2.15m indemnity it sought.
Lawyers for the insurers in the FCA test case have argued in favour of a similar analysis for policyholders whose businesses were hit by Covid-19. However, in the FCA test case, the judges, Lord Justice Flaux and Mr Justice Butcher concluded that the Orient Express analysis was of no relevance to the test case, adding that they would have ruled that it was “wrongly decided” if they had been forced to consider it.
Such a construction is more sympathetic to policyholders and paves the way for more generous payouts under so-called trends clauses which assess the extent to which a business has been financially affected by an event by reference to its trade during that period.
In legal terms, this process has moved at record speed, going from issue of the claim at the High Court to Supreme Court appeal within six months. Insurers and policyholders alike have much at stake and will be awaiting the Supreme Court’s decision with trepidation.
While the decision will bring some certainty, there will inevitably be many whose claims and policies fall between the cracks and who will require specialist legal advice to protect their position. The test case considered 21 sample policy wordings out of an estimated 700 types of business interruption insurance. Inevitably, the Supreme Court decision will not resolve all issues between policyholders and insurers.
Penningtons Manches Cooper’s specialist insurance law and group action team is acting for a number of prospective claimants and can advise on the most cost-effective route to securing a recovery – please contact Biclaims@penningtonslaw.com if you would like advice or to become part of the group.