Ruaidhrí Austin

The High Court in England and Wales has handed down its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case The Financial Conduct Authority v Arch & Ors. The FCA has won what is being described as a significant victory on behalf of holders of business interruption insurance.

The 160-page judgment brings hope to what the FCA estimates is as many as 370,000 UK business owners who are seeking pay-outs under their policies following the coronavirus pandemic.

Following expedited proceedings, the judgment brings highly anticipated guidance on the proper operation of cover under certain non-damage business interruption insurance extensions.

Not only will this judgment have implications for businesses in the UK and Northern Ireland, the eyes of the insurance sector and businesses throughout the Republic of Ireland will be firmly fixed on the potential repercussions of this decision and the similar test cases taken by Irish Publicans against FBD which is due to be heard in the Irish Commercial Court in October 2020.

This judgment will be particularly useful and certainly of interest to the High Court in Dublin in October.

The judgment

A total of 21 major policies were considered and relevant provisions in the policies broadly fell into three categories:

1. Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
2. Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
3. Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.

Given the sheer volume of policy wordings considered over the eight-day hearing, the Judgment is extremely detailed, and businesses should be advised to examine particular policy wording relevant to them.

The implications of the judgment

Huw Evans, director general of the Association of British Insurers, said: “Insurers have supported this fast-track court process led by the FCA to help bring clarity for customers and we welcome the speed with which the court has delivered a ruling.

“The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.

“Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events.”

Coronavirus has caused and is continuing to cause substantial loss and distress to businesses and many are under immense financial pressure to stay afloat. This judgment is being viewed as a lifeline by many business owners, particularly those with wordings similar to those considered in the test case.

Importantly, the Court did not find that the 8 defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court.

Instead what the Court did was provide guidance as to how business interruption insurance wordings should operate in the context of the Covid-19 pandemic which has brought such a devastating effect on businesses in the UK and Ireland.

Commentary

We at Lacey Solicitors, are assessing this judgment in detail and are working closely with insurers, brokers and their policyholders both in Northern Ireland and the Republic of Ireland to determine whether, using the principles laid down by the court, the facts of their individual circumstances satisfy the requirements of the policy wordings in establishing cover.

The issue however is that business interruption claims will remain complex to assess and quantify and whilst this case is of immense benefit, it is not a silver bullet. This test case was successful insofar as it clarified a number of contractual uncertainties for insurers and their policyholders and removed the need for policyholders to resolve a number of the key issues individually with their insurers. It will not succeed in clarifying all possible disputes and clearly time will be needed to fully process the judgment both by insurers and their policyholders.

The FCA and insurers are considering the judgment and what it might mean in respect of any appeal. Any applications to appeal will be heard at a consequentials hearing before the High Court. The FCA is seeking to have a consequentials hearing as early as possible.

The FCA and insurers have agreed that they will seek to have any appeal heard on an expedited basis, given the importance of the matter for so many policyholders. It is widely anticipated that any appealing party may issue a ‘leapfrog’ appeal directly to the Supreme Court to expedite the final decision on this crucial case.

• Ruaidhrí Austin is a solicitor at Lacey Solicitors, a boutique law firm specialising in insurance law.