On 9th June 2020, the Financial Conduct Authority (FCA) along with eight insurers agreed to participate in the Financial Markets Test Case Scheme with the aim of seeking clarification regarding the wordings used to determine Business Interruption policy coverage. The purpose of the test case was for the High Court to determine how insurers should word their business policy terms in light of the Covid-19 pandemic and the accompanying restrictions for many businesses.
On 15th September 2020, the High Court handed down its judgment which was mostly in favour of small businesses in attempt to avoid insurers benefitting from unfair indemnity clauses. The Court looked at 21 different sample policies from the eight insurers and assessed three classes of clauses in detail. Predictably, the consensus was that the insurers wanted stricter interpretation of certain clauses whilst the FCA promoted the interests of the insured businesses by striving for more flexible interpretations.
Firstly, the Court found that insurers should cover claims for loss suffered by businesses which was caused by Covid-19. Under the Disease clause, the cover follows or arises from the occurrence of a notifiable disease within a specified radius of the insured premises. The Court clarified that the policyholders are not required to prove Covid-19 was the sole cause of the interruption to business as the coronavirus pandemic itself qualified as an occurrence. Policies using a Disease clause should include a specified radius from the premises which will act as an indicator as to whether the business has been interrupted by the disease. However, the Court notes that where there is a national lockdown, the causation element is satisfied.
Secondly, Prevention of Access clauses are included to cover situations when there has been a prevention or hindrance of access to or use of the business’ premises. The wording of the Prevention of Access clause requires closure of the business’ premises which is quite common given the coronavirus restrictions in place forcing many businesses to close.
This interpretation of the Prevention of Access clause is especially important for hospitality businesses as most restaurants and cafes have been forced to close on-premises dining however have adapted to offer takeaway or delivery services. Note, this clause would not cover businesses who are able to continue to provide services even if it is in a limited way. For example, a restaurant and takeaway shop has been forced to close because of coronavirus restrictions however the takeaway service can still operate. Another example can be found for non-essential retail businesses being forced to be closed. If the business adapted to include a click and collect service, which they did not previously provide, then the insurance policy would be activated. This is because there was a prevention of access to using the premises for the purposes insured for, as a retail shop.
Lastly, Hybrid clauses were considered to cover scenarios where restrictions regarding use of premises were imposed in addition to interference caused by a notable disease. The Hybrid clause incorporates both the Prevention of Access clause and Disease clause. The Court clarified that restrictions regarded mandatory restrictions only, interruption regarded disruption or interference, and lastly, an occurrence, as above, is sufficed by a national lockdown.
In order for policyholders to provide evidence to be relied upon, the Court approved the following four categories: Specific evidence of a case within a relevant policy area; NHS or ONS Deaths Data; Reported Cases; and other statistical reliable evidence.
Please contact John Szepietowski at Audley Chaucer for details on this matter or any other legal topic www.audleychaucer.com