The UK Supreme Court issued a policyholder-friendly decision earlier this year on the Financial Conduct Authority’s business interruption test case. The judgment will apply to policyholders’ claims on a case-by-case basis.
On 15 January 2021, the UK Supreme Court handed down its judgment in the COVID-19 business interruption (BI) insurance test case brought by the Financial Conduct Authority (FCA) for the benefit of policyholders. We have previously provided a review of this judgment in a prior LawFlash.
The FCA has said that, in the period between the Supreme Court decision and 14 June 2021, insurers have paid out £757 million to policyholders in respect of claims related to COVID-19 under their BI insurance policies. However, in the wake of the landmark ruling, the English courts have in recent months seen a number of BI claims brought by policyholders against their insurers. Despite the likelihood that the FCA judgment has resulted in claims reaching settlement, it is evident from the cases going through the English courts that there are points of dispute between insurers and policyholders.
Shortly after the decision of the Supreme Court, the FCA issued a “Dear CEO” letter to those insurers affected by the BI test case. It is clear from this communication that the FCA is keen that all businesses with valid BI claims receive payments due to them from insurers as soon as possible. In its letter, the FCA explained its intention to request and publish data on BI policies that respond to COVID-19, along with information from affected insurers on the progress of their non-damage BI claims by policyholders.
The FCA published data on BI claims for the first time on 22 March 2021, and it continues to do so on a monthly basis. The FCA reported that, as of 5 July 2021:
Based on these figures, insurers have not yet made any payments to 16,598 BI policyholders whose claims have been accepted. Accordingly, the FCA has advised that “[a]ny [BI] policyholders who believe they may have a claim but have not yet submitted this to their insurer should do so as soon as possible in accordance with the policy document.”
Although the Supreme Court judgment is very policyholder-friendly and the FCA envisages a swift recovery process, such a positive outcome for policyholders is not guaranteed. In some circumstances, some policyholders have had no option but to seek recourse via the English courts. We have provided a summary of some of these cases below.
Travel company World Challenge Expeditions cancelled a number of student trips throughout 2020 as a result of COVID-19 and had to refund a total sum of £10 million. It now seeks that amount from Zurich. World Challenge contends that the policy contains cancellation clauses which cover events beyond its control, such as global pandemics. World Challenge submitted that Zurich had previously provided cover in respect of BI losses for medical events outside its control, and for cancellation losses unrelated to COVID-19. As a result, World Challenge’s position is that its policy covers cancellations due to COVID-19. Furthermore, “World Challenger sought express confirmation from the defendant that the defendant would continue to indemnify the claimant for the amount of the deposit which the claimant was obliged, upon cancellation, to refund to challengers.” Despite Zurich’s prior assurances that it would cover losses relating to COVID-19, it subsequently changed its position.
UK holiday park operator Parkdean has commenced a claim for £71 million in respect of losses suffered due to the closure of 67 caravan, camping, and chalet sites following the outbreak of COVID-19. Parkdean’s policy provides cover in respect of premises forced to close because of an outbreak of an infectious disease. Parkdean’s position is that the government’s lockdown restrictions prevented access to the insured premises, within the wording of the policy. Parkdean also claims for “tail losses” after the lockdown ended because “given the length of time the parks were required to be closed, such a ramp-up period necessarily took some weeks” and its adjustment period continued until 24 July 2021.
Axis’s position is that Parkdean needs to prove the losses were suffered because of the lockdown and not by a general economic downturn. Further, Axis denies that COVID-19 prevented access to the sites and argues that COVID-19 was present prior to the imposition of the lockdown restrictions.
Corbin & King, the owner of a number of other upmarket London restaurants, has commenced a claim against AXA for £6 million in respect of lost sales when the company’s venues were obliged to close in both March and November 2020, and were placed under restrictions in September 2020. Corbin & King contends that each of these instances constitutes a separate restriction of access under its BI policy. Each individual venue ought to have received up to £250,000 each time the venues (which were separately insured) were closed or adapted in compliance with government regulations.
AXA’s position is that “[A]ny restriction on, or hindrance to, access to the premises must arise directly from actions taken by police or any statutory authority in response to the danger or disturbance at the premises or within a one-mile radius of the premises” rather than “actions taken at a national level, in response to a national emergency.” In other words, cover was not available because the government did not impose lockdowns or restrictions in respect of a localised danger or disturbance specifically at any of Corbin & King’s restaurants, or within a one-mile radius of the premises. Furthermore, AXA considered that the maximum sum recoverable under the policy would be £250,000 for all of the restaurants together in respect of each set of government restrictions, totalling £750,000.
Another restaurant company is seeking to recover almost £16.4 million from Allianz in respect of losses suffered during the COVID-19 lockdowns, specifically £15.8 million for decreased turnover, £520,000 for increased working costs, and £30,000 in costs for the claim. Various Eateries’ claim for losses falls under different categories in its policy, namely the prevention of access clause, the enforced closure clause, and the disease clause. Relying on the FCA test case, Various Eateries’ position is that each lockdown and each set of restrictions constitutes distinct events under the policy.
Following the imposition of the first national lockdown in England, the staff of a law firm, Everatt’s, could not work from its main office. Their inability to access the premises allegedly caused the firm to suffer a loss of income. Everatt’s claim against Aviva is based on the prevention of access clause in its BI policy, which was triggered by government action. Everatt’s contends that its policy covers loss of income up to a total of £478,000, in addition to increased office expenses of approximately £150,000.
Aviva states that the majority of the losses claimed by Everatt’s were “attributable only to the wider effects of the Covid-19 pandemic and not to the hindrance or prevention of access to or use of the premises” and as such are not covered by the policy. Rather, Aviva must only indemnify Everatt’s for lost income directly linked to the inability of lawyers to attend the office during the lockdown. Aviva therefore maintains that any payout to Everatt’s should be subject to a cap of £50,000.
The FCA test case produced a resoundingly policyholder friendly result. However, the UK Supreme Court considered only the policy wordings that were at issue in the test case, as opposed to the wording of every BI insurance policy, and related policyholder claims. In order to establish the implications of the judgment in the FCA test case for their own claims, policyholders must therefore consider the specific wording of their individual policies against wording of the policies considered by the Supreme Court.
The cases currently before the English courts can provide policyholders with an indication of the types of arguments the courts are hearing from policyholders and insurers in respect of cover for BI losses. Should these cases reach trial, policyholders will benefit from the analysis of policy wording in the context of the relevant facts (against the backdrop of the FCA test case) which will be set out in the courts’ judgments.
Policyholders can also look to the FCA for further guidance on their BI claims. The FCA has published a BI insurance policy checker and general policyholder FAQs designed to enable policyholders to investigate whether their policy will cover BI losses due to COVID-19. It does so by checking whether the wording in the relevant policy is the same as, or very similar to, the 21 policies in the representative sample considered in the FCA test case. However, the FCA stressed that each claim will need to be considered on an individual basis to determine whether the policy in question provides cover for losses suffered as a result of COVID-19, reminding policyholders to check in particular (i) the extent of their cover, including the length of their indemnity period, and (ii) the losses included under the cover.
The FCA has also produced a list of BI policies which insurers have assessed as being (in principle) capable of responding to COVID-19 following the FCA test case. Such policies cover over 200,000 policyholders. Policyholders may also refer to a table which highlights the most relevant declarations in the FCA test case by policy type for policyholders.
Finally, when seeking to establish a claim against their insurers for BI losses, policyholders may rely on the guidance published by the FCA on proving the presence of COVID-19, as well as the calculator which was similarly launched to help policyholders prove the presence of COVID-19 in their policy area.
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Trainee solicitor Charlotte Warke contributed to this LawFlash.