Business Interruption – An End in Sight?

It was (and remains) our view that most commercial insurance policies will not (necessarily) respond to business interruption losses caused by the outbreak of disease. Many policies were absent any ‘disease’ extension to the business interruption cover, others required there to have been an outbreak of the disease at the premises.

There were, however, other policies which could be said to have created a clear pathway to cover. Nevertheless, we have seen that, collectively, the Insurers’ overwhelming initial response was to repudiate liability across the board.

This situation here was mirrored on the other side of the Irish Sea. There, thousands of policyholders who had the reasonable expectation that they would be covered, were met with distraction, delay, and denials. The Financial Conduct Authority [FCA] is the body responsible for regulating the UK insurance market. They quickly realised that there were potentially far too many claim repudiations than could be accommodated by Arbitration or their Financial Ombudsman Service. The FCA (as Plaintiffs) took the unprecedented step of taking several Insurers (as Defendants) to the High Court seeking to test the extent of cover created by specimen policies that the FCA determined were broadly reflective of the market as a whole.

This case, The FCA v Arch & Others, was heard and the judgement has been delivered by Lord Justice Faux and Mr. Justice Butcher.

The High Court found in favour of the Financial Conduct Authority [and thus, policyholders] on most of the critical questions. While the Court reached different conclusions in respect of the various sample wordings, based upon the Court’s findings most disease, certain denial of access/public authority clauses and many ‘hybrid’ clauses that combine elements of both disease and denial of access, appear likely to respond.

We acknowledge that this [FCA] case has been appealed by some of the Insurers and by the FCA themselves. The UK Supreme Court will sit and deliver their judgement as a matter of urgency; it being understood that time is very much of the essence.

The decisions of non-Irish courts – said to be of persuasive authority – are often adopted in Irish cases particularly where there is no Irish authority. Given the fact that we share a system of laws, UK decisions are frequently cited in Irish cases.  Whilst the drive to create certainty in the United Kingdom still has some twists and turns to negotiate, it does appear that the matter there is close to being crystallised once and for all.

In Ireland, our regulator, the Central Bank of Ireland took a somewhat different approach, issuing their Business Interruption Insurance Supervisory Framework.

Director General of Financial Conduct, Derville Rowland, said: “We recognise that Covid-19 has placed immense pressure on many businesses and that they need clarity on business interruption insurance issues. Our Framework … seeks to drive that clarity. The Framework reiterates our core message to firms: that they honour valid claims in full and pay them promptly. Furthermore, where cover is disputed and businesses have pursued litigation, insurance firms should be cognisant of the significant costs burden faced by their customers. We therefore expect that in circumstances where the firm obtains the benefit of a court’s interpretation of issues at hand, a firm should agree to pay the reasonable costs of customer plaintiffs in agreed test case litigation and should not seek its costs against these plaintiffs. Finally, where a legal action has been concluded and the final outcome has a wider beneficial impact for other similarly impacted customers, firms will be required to take urgent remedial action to ensure that those customers obtain the benefit of the final outcome.”

These welcome moves by the Central Bank, in our experience, have yet to deliver tangible results for policyholders. Certainly, relatively few claims have been settled since the Framework was published. We understand that repudiations under several policies are likely to result in ‘test case’ litigation as envisaged by the Bank, and we look forward to the outcome of those cases in due course. Indeed, there are likely to be many more court cases unless those Insurers with responsive policy wordings move to settle claims.

Instead, we have seen that Insurers have been ‘playing for time’, waiting to see how the FCA case is finally decided and/or ignoring the case entirely.

Of course, in an Irish context, the decision of the ‘FBD test case’ is keenly awaited, with the judgement due to be handed down on the 15th of January 2021.

In this instance, several Publicans issued proceedings following FBD’s refusal to cover the respective pubs under its business interruption policy. The FBD policy wording is, with some subtle differences in wording, similar to that already ‘tested’ in the UK Court, i.e. cover in respect of an outbreak of disease within a 25-mile radius of the premises.  It was our view, from the outset, that this wording created a pathway to cover (and a claim) for policyholders. Nevertheless, it once again falls to the Courts to create the certainty demanded by policyholders and insurers alike. When it is handed-down, the judgement will be of huge interest not only to FBD and their Policyholders, but to all Insurers, Brokers, Assessors and Adjusters.

The market and all the respective players have been inching towards a resolution to the issues created by the interruption of COVID19 and business interruption policies. It has been a frustratingly slow process that has left many policyholders without the support that they had expected (and we say they are entitled-to) from their Insurer.

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