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Coronavirus: High Court to give landmark ruling on insurance claims

The High Court is set to deliver a landmark ruling on the coronavirus pandemic’s impact on insurance claims which could see hundreds of thousands of businesses receive a payout.
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The Financial Conduct Authority (FCA) brought a test case earlier this year over the wording of business interruption (BI) insurance policies, which some insurers argue do not cover pandemics.

The city watchdog previously said it was bringing the legal action following “widespread concern” over “the lack of clarity and certainty” for businesses seeking to cover substantial losses incurred by the Covid-19 pandemic and subsequent national lockdown.

According to the regulator, the value of policies likely to be affected by the test case is about £1.2 billion.

The FCA selected a representative sample of 17 policy wordings used by 16 insurers, which were considered at an eight-day hearing in July.

Eight insurers agreed to assist the FCA by taking part in the test case, which the regulator has said it hopes will provide “clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike”.

Lord Justice Flaux and Mr Justice Butcher are expected to give their ruling on Tuesday morning.

At the hearing in July, the FCA’s barrister Colin Edelman QC said about 370,000 policyholders “could potentially be affected by this litigation”.

He suggested this “ballpark figure” pointed to the importance of the case for businesses “confronting the financial impact of the coronavirus epidemic”.

The FCA said the Government’s coronavirus public health controls had caused “substantial loss and distress to businesses”, particularly small and medium enterprises (SMEs).

It argued that, while some insurers had provided payouts to customers, many businesses had had claims “rejected” under “blanket denials of cover”.

The FCA’s written arguments at the July hearing noted that, while positions vary, insurers have denied claims on the basis that their policies “do not cover pandemics, but only local events”.

Leigh-Ann Mulcahy QC, who also represented the FCA at the hearing, told the court the outbreak of Covid-19 had triggered a “national response” driven by “the danger and the emergency” of the disease.

She suggested all businesses had to follow the Government’s advice, guidance and lockdown requirements, whether or not these were specifically legislated for.

Businesses had “legal duties” to employees, customers, contractors and visitors, including health and safety requirements, she said.

“It wasn’t up to policyholders to breach the UK Government’s advice and guidance without breaching their legal duties regarding the health and safety of employees and as occupiers in relation to the public,” she added.

This covered advice such as avoiding unnecessary travel and isolation and social distancing requirements, which made it “impractical for businesses to function” even if they were allowed to remain open or partially open, she argued.

Ms Mulcahy also argued that the Government’s advice was “as much as a restriction as any legislative measure” which “had to be complied with”.

The court also heard that some insurers’ policy clauses explain that cover is only provided in outbreaks of a “notifiable disease”, which Covid-19 became in England from March 5, which means medical practitioners have a legal duty to report cases.

The list of notifiable diseases exists to help the Government take action over cases of epidemic, endemic or infectious disease.

Some policies also specify that cases must have occurred within either 25 miles or one mile of a business premises for it to count as being directly affected.

Ms Mulcahy said that, during lockdown, the UK “physically shut down”, including pubs, bars, cafes and restaurants, and where people had the ability to access businesses premises it was “the exception and not the rule”.

A witness statement by the FCA’s director of general insurance and conduct specialists Matthew Brewis said that, up to early May, about 8,500 claims had policy wordings likely to be affected by the test case, with a value of approximately £1.2 billion.

The FCA has said that most SME insurance policies have basic cover that was focused on property damage, meaning insurers were not obliged to pay out due to the coronavirus pandemic.

This test case is focused on the remainder of policies where an argument could be made that they did provide cover during the virus outbreak.

The High Court’s judgment is due to be delivered remotely at 10.30am on Tuesday.

By Sam Tobin, PA





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