In a decision that will affect how policyholders and insurers worldwide deal with business interruption coverage for COVID-19 losses, the English Supreme Court recently issued its long-awaited judgment in the "Test Case", Financial Conduct Authority (FCA) v Arch et al . The High Court's comprehensive analysis is likely to serve as an additional tool in policyholders' arsenal in the ongoing battles for COVID-19 coverage.
The panel, composed of two well-respected judges, one from the High Court (UK) and the other from the English Court of Appeal, analyzed 21 examples of wording in extensions of coverage for loss of business interruption due to illness or issuance of government decisions. (Many of these wordings are also found in policies sold to U.S. policyholders.) The Supreme Court found that the COVID-1
This judgment in favor of policyholders complicates insurers' arguments – in court and in the media – that their policy cannot be read to cover COVID-19. Instead, the ruling shows that it is reasonable for policyholders to read certain insurance policies regarding illness coverage or the issuance of government regulatory requirements that provide business interruption coverage for COVID-19-related losses. The High Court reached this conclusion by applying well-balanced principles of policy interpretation (similar to those employed in the United States), which require insurers to accept all reasonable interpretations that support coverage. The Supreme Court made different conclusions with regard to each example of wording, but the judgment clearly shows that coverage after a careful analysis of the specific policy language and extensions as well as the facts that lead to and around the losses of a particular company. may actually be available for COVID-19 business interruptions.
Origin of the test case
As in the United States and around the world, the COVID-19 pandemic has affected the business of many policyholders in the UK. The companies suffered significant revenues and loss of income and some incurred additional costs, which resulted in a cascade of insurance claims under their business interruption policy (BI). These receivables amounted to billions of pounds. Since then, insurers have questioned whether their insurances provide coverage.
The FCA, the UK's consumer regulatory watchdog, sought to quickly address some of the key issues raised by insurers. For the first time in its history, the FCA designed a so-called "test case" process. The FCA contacted 56 insurance companies and sought information about their business interruption policies, as well as how insurers intended to handle COVID-19 claims. The Swedish Competition Authority then chose the 21 exemplified formulations that appear in insurance contracts for business interruptions, which the FCA considered reflected some of the most important issues in the dispute. In the end, 370,000 policyholders were included in the test case.
The FCA brought the test case before the Commercial Court, the Financial List of the High Court of England and Wales, a UK court. Experienced lawyers represented both the FCA and
Lord Justice Flaux, of the English Court of Appeal, and Mr. Justice Butcher, sitting in the Commercial Court, heard oral arguments for eight days in July. On September 15, 2020, they announced the verdict in the High Court.
Example policy formulations
Examples of formulations included illness and / or denial access from a public authority. They contained undamaged additions to the so-called "standard" interruption coverage found in many policies. The "ordinary" coverage, noted by the High Court, "depends on the occurrence of physical or material damage to the insured premises." (Judgment ¶ 80.) The Supreme Court did not address this "standard" coverage; it focused narrowly on three types of extension clauses (listed in more detail below), which can be triggered regardless of whether there is physical loss or damage.
- The Disease Clauses : These clauses, in "general terms, provide coverage in the event of business interruption due to or after or as a result of the occurrence of a notifiable disease within a specified radius of the insured premises." ( Id .)
- Prevention of access / authority clauses : These clauses cover "where there has been an impediment or impediment to access to or use of the premises as a result of government or local authorities' actions or restrictions." ( Id . At ¶ 306.)
- The Hybrid Clauses : These clauses refer to policies with languages that may apply to both “restrictions imposed on the premises and on the occurrence or manifestation of a reported disease. . " ( Id . At ¶ 242.)
The test case did not discuss the core issues that have been asked in the United States, mainly whether COVID-19 and / or the resulting state order have caused any particular policyholders to maintain "physical" "loss" or "damage". (We have discussed these extensively in our previous posts.)
As we explained in our condemnatory post, the FCA claimed that coverage applied if business interruptions were generally caused by COVID -19, which does not require COVID-19 to be detected within a certain distance from the insured premises. It also claimed that the government's lockdown restrictions triggered coverage because the restrictions prevented companies from operating as usual.
The insurers claimed in part that only the local presence of COVID-19 triggered coverage. They also claimed that advice or guidance from the government did not trigger coverage. mandatory orders were required. According to insurers, state guidance and legislation caused business interruptions across the country, and these were not covered by the example formulations in contrast to locally proven cases of COVID-19 found within a certain radius of each insured place, which would be
The High Court ruled in favor of the FCA on a number of important points. It applied English legal principles to coverage interpretation, which US Councils often find less favorable to policyholders than those adopted in the United States. The High Court found that most of the disease clauses provided cover and that some clauses on the prevention of access / authority did so as well, depending on whether there was a mandatory closure of the government or whether the activity was closed completely.
With regard to the disease Clauses, the High Court held that the policy formulations in the example did not limit the coverage only to the effects of a local occurrence of disease. As the wording did not explicitly state that the disease should only occur in the area in question, the insured risk was a disease that could occur nationwide. Given the purpose behind disease coverage, the High Court stated that “the nature of some of these diseases is that they may well spread over a significant and difficult area to predict. . . . It is also of the nature of such diseases that they may well give a response from the authorities or the public which is against the outbreak as a whole, not against those parts of it which fall within the "immediate area." "( Id. at ¶ 143.)
With regard to access / authority clause prevention, the High Court concluded that the determination of whether these examples of policy formulations provided coverage would largely depend on the actual The Supreme Court ruled that policy language such as "imposed restrictions" conveys a restriction that is mandatory, not merely advisory. The High Court further found that clauses using the term "denial of access" required complete closure of premises, but still interpreted other clauses, such as those using the term "barriers to use", to be less restrictive.In addition, the High Court ruled that "interruption" did not require complete cessation of business because it "is interpreted as not is limited to complete cessation without involving disruptions or disruptions to operations eten. "( Id. at 414.]
With regard to the hybrid clauses, the High Court concluded, as it did with the disease clauses, that the coverage was not limited to local outbreaks. In line with its decision on the prevention of access / regulatory clauses, the High Court held that certain terms (eg "imposed restrictions") meant a mandatory requirement and others (eg "inability to use") meant more than just a write-down of normal use.
The potential impact of the decision
The judgment is binding on the eight insurers who are parties to the test case as regards the example of wording. The judgment does not determine how much is to be paid according to individual policies.
As we have explained in previous posts, COVID-19 coverage disputes are ongoing around the United States and courts have issued conflicting rulings. The High Court ruling is of course not binding on any American court. The ruling is nevertheless favorable for policyholders because it contradicts the insurance industry's position that similar insurances do not provide coverage for COVID-19 business interruptions. U.S. policyholders with policies that have comparable coverage extensions and languages such as those in the sickness clauses and access / public authority prevention clauses can use the judgment as a framework to structure their claims and base arguments in favor of coverage on this decision by a well-controlled authority. The ruling would be convincing evidence of the reasonableness of US policyholders' interpretation of the policy formulation. , The FCA has stated that it is working closely with the eight insurers involved in the test case to reach an agreement on certain issues that may eliminate the need for appeal. Despite these ongoing negotiations, the FCA and seven of the eight insurers have filed "leapfrog" applications to appeal directly to the Supreme Court (bypassing the Board of Appeal). According to the parties, the applications are only procedural measures needed to maintain the speed of the process should it be appealed.
It is too early to draw specific conclusions regarding the long-term effect of the test case. The test case at least contradicts the position of the insurance industry that similar insurances do not provide COVID-19 coverage. The ruling shows that it is reasonable to read some policy language that provides coverage for business interruptions due to the COVID-19 pandemic and the consequent government measures – and all such reading must be read in favor of coverage. Policyholders must look carefully at the wording and assess how their policies apply to their specific facts.
As we have done with all major COVID-19 coverage developments, we will continue to monitor the test case and update our readers on material developments.