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Supreme Court’s final judgment on Covid 19 business interruption policies

The Supreme Court has now delivered the highly anticipated final judgment clarifying insurer’s liabilities under business interruption policies in relation to Covid 19 losses. The Supreme Court upheld the earlier High Court ruling which provided good news for policyholders.

The proceedings were instigated by the Financial Conduct Authority (“FCA”) under the Financial Markets Test Case Scheme in an attempt to achieve prompt clarity and certainty on a variety of policies in one single judgment rather than having to await the outcome of an avalanche of lengthy and costly claims to be brought by affected policyholders. The FCA represented the interests of policyholders against eight insurance companies and two intervening groups of policyholders and argued, generally speaking, that business interruption insurance cover included cover against global pandemics. The substance of the claim was the insurers’ refusal to pay out on claims after the country was put into its first lockdown, arguing that regardless of the wording used, business interruption policies were simply not intended to cover a global pandemic event, an argument rejected by the courts.

The court accepted the arguments of the FCA in regards to the effect of the wordings in most cases and ruled largely in favour of the policyholders. The judgement had the effect that many businesses that were forced to close when the lockdown started were able to claim under their business interruption cover. Businesses that closed down before the first lockdown legislation was enacted would have their pay-outs reduced due to “trends clauses” (a standard method of quantifying business interruption losses by comparing the performance of a business to an earlier period of trading). The FCA objected the ruling on “trends clauses” whilst insurers argued that the High Court judgement went against the principles of causation. The FCA and six insurance companies appealed.

In addition to the much needed guidance on the meaning of words such as “disease” and “prevention of access”, the judgments provide welcome clarification on issues of the causation and quantification of covered losses.

The Supreme Court judgment provides some much needed positive news for the business world but, of course, its benefits are limited to the lucky business who had a qualifying policy in place.

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