The Supreme Court has substantially allowed the FCA's appeal on behalf of BI policyholders, following the financial services regulator's decision to bring the test case to address uncertainty surrounding business interruption coverage during the coronavirus pandemic.
While the 112-page ruling from the Supreme Court is considered ‘complex', the FCA has confirmed that a large number claims for coronavirus-related losses will be paid as a result.
Sheldon Mills, executive director, consumers and competition at the FCA, commented: "Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues. Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today's judgment decisively removes many of the roadblocks to claims by policyholders.
"We 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 wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
"As we have recognised from the start of this case, tens of thousands of small firms and potentially hundreds of thousands of jobs are relying on this. We are grateful to the Supreme Court for delivering the judgment quickly. The speed with which it was reached reflects well on all parties."
Insurer appeals dismissed
In September last year, the High Court ruled that most of the disease clauses and certain prevention of access clauses, which included 12 policy types from a sample of 21 issued by six insurers, did provide appropriate cover, however the six insurers appealed those conclusions for 11 of the policy types,
Those appeals have been dismissed by the Supreme Court for different reasons than those of the High Court, ruling that cover may be available for partial closure of premises (as well as full closure) and for mandatory closure orders that were no legally binding.
It also decided that valid claims should not be reduced because the loss would have resulted in any event from the pandemic and that two additional policy types from insurer QBE do provide cover.
This will therefore result in more policyholders having valid claims and some pay-outs will be higher.
Case closed
Today's judgment brings an end to legal arguments under 14 types of policy issued by six insurers and a substantial number of similar policies in the wider market which will lead to claims being possible, the FCA said.
The regulator added that the decision to bring the test case in effect has removed the need for policyholders to resolve claim disputes directly with insurers.
Around 370,000 policyholders were identified by the FCA as holding 700 types of policies issued by 60 insurers that may be affected by the outcome of the initial FCA test case, many of them SMEs.
Matt Connell, director of policy and public affairs of the Chartered Insurance Institute, said: "This pandemic has had a disastrous effect on our society, our way of life and our economy, so I genuinely hope this will provide a conclusion to a difficult journey many people and businesses have had to experience over the last year."
"This judgement will have huge ramifications for insurance beyond business interruption and it is important this is also looked at as openly as possible."
"Rest assured insurance professionals will be examining how this affects policies and will reach out to policyholders about what this means for them, indeed in some cases this process will have already begun."
"The CII has long discussed the importance of trust and confidence in insurance and we believe both can be restored if this process remains open and transparent to the public. We recently released guidance in collaboration with the ABI, BIBA, and our members, to support professionals close the gap between what customers expect insurance products to do and what they deliver, and we will continue to engage on this matter."
