19th January 2021


The Background
The UK is currently in its third national lockdown and there are thousands of businesses looking to their Business Interruption Insurance (“BII”) to help them survive. Most SME polices are focused on property damage (eg flood or fire) and the basic BI cover is a consequence of the property damage. But some polices also cover for BI from other causes, in particular infectious diseases, and denial of access by government restrictions.  Despite these clauses many insurers denied liability to circa 370,000 businesses.

The FCA as regulator of the insurance companies brought test case proceedings in order to establish principles of whether cover was in place.  The proceedings commenced on 9 June 2020 against 8 insurer defendants considering 21 sample polices.  On 15 September 2020 the High Court handed down its judgement, finding in favour of the FCA on the majority of the key issues.

Following the judgment the majority of the insurer defendants filed for an appeal.  In anticipation the FCA applied to the High Court, for a “leapfrog” appeal, bypassing the High Court straight to the Supreme Court.  This was no doubt to prevent the Insurers appealing the appeal, in the event that they lost.

The judgment handed down by the Supreme Court on 15 January 2021, substantially allowed the FCA’s appeal and dismissed the insurers appeal.

What Next?

The Association of British Insurers has responded to the verdict, indicating that “policyholders who have made claims that are effected should be contacted by their insurers to discuss what the judgment means”.

The FCA responded saying that they “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 where possible”.

Hiscox, one of the defendants said “The Supreme Court largely confirms the outcome of the High Courts ruling that, except in rare circumstances, cover is restricted to Hiscox policy holders who were mandatorily closed.  Fewer than one third of Hiscox’s 34,000 UK BI polices may respond as a result”.

What do we think?

The different stances of the above parties are very relevant.

For all the euphoria surrounding the ruling, you must remember that for policyholders, this is just the first step, albeit an important one.  Whilst the FCA have certainly made life easier, it is still incumbent on businesses to demonstrate that the losses suffered were caused (broadly and subject to policy language) by the pandemic.  If the quantum of claims can be argued for a significant period, then there is no doubt that many businesses will not be able to survive to have the fight.  It is not in insurers interests to settle quickly and therefore businesses need to take all necessary steps to give them as much time as possible, in order to benefit from this judgment.  If that means temporary restructuring in the form of informal or formal arrangements with its creditors then all options should be considered.
The FCA will continue to keep policyholders appraised of matters as they progress, through its dedicated webpage.
Please don’t hesitate to contact one of us if you wish to discuss further.

Paul Ellison                          07967 471211 / [email protected]
Robert Keyes                       07500 933 022 / [email protected]
Gareth Roberts                    07979 706 392 / [email protected]
David Taylor                         07855 231 103 / [email protected] 

For any further information on our services please do not hesitate to give one of us a call