The High Court has today ruled against insurers in a landmark decision which paves the way for pay-outs to an estimated 370,000 businesses forced to close during lockdown. In their judgment, Butcher J and Flaux LJ ruled in favour of policyholders in the majority of the 21 policy wordings considered under the business interruption test case brought by the Financial Conduct Authority (FCA).
Christopher Woolard, interim chief executive of the FCA, said: “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. 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.”
Penningtons Manches Cooper partner Michael Brown, a specialist in group action and commercial litigation, commented: “This is a highly significant decision, both in its potential impact for hundreds of thousands of businesses and for the almost unprecedented speed with which the decision has been reached - judgment was handed down just three months after the start of the action and some two months after the trial ended. The High Court has established the overarching principles to be applied when considering a wide range of policy wordings, but of course much will turn on the wording of each individual policy and prospective claimants should seek specialist legal advice as to their next steps. While this is an important victory for policyholders, the insurers have been given the right to appeal directly to the Supreme Court in a so-called leapfrog application.”
The case concerned a sample of policies from eight representative insurers and is expected to impact some 700 policy types, 60 insurers and 370,000 potentially affected policyholders. During the two week case, the court reviewed 21 ‘lead’ policies which fell broadly into three categories: (i) disease clauses (ii) hybrid clauses and (iii) clauses concerned with the prevention of access to premises. The defendant insurers argued that the interpretation of all three categories depended on complex issues of causation. However the court concluded that most of these issues could be resolved by reference to the actual language of the relevant policy wording and considering what the “reasonable person…who has all the background knowledge which would reasonably have been available for the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.”
The trial heard submissions from the FCA, two claimant groups and the eight defendants who had agreed to be part of the test case. These defendants were Arch Insurance (UK) Ltd, Argenta Syndicate Management Ltd, Ecclesiastical Insurance Office Plc, MS Amlin Underwriting Ltd, Hiscox Insurance Company Ltd, QBE UK Ltd, Royal & Sun Alliance Insurance Plc and Zurich insurance Plc. Following the decision, the claimant groups have called for interim payments to be made by the insurers but it is likely the insurers will pursue their appeal at the Supreme Court.
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.