‘The insurer utterly abandoned us and sought to mitigate their losses to zero’. These words, spoken by Mr Murray Pulman  of the Posh Partridge café in Dorset, capture the feelings of many of the hundreds of thousands of UK policyholders denied coverage by their insurers for Covid-19 business interruption claims. Relief might be coming for some of these policyholders following this week’s High Court judgement in the Financial Conduct Authority’s (FCA) business interruption (BI) insurance test case .
At the height of the UK’s pandemic lockdown BI insurance coverage (or lack of it) was a hot topic; in our April blog on the subject we noted ‘Coverage for business interruption has become the focus of criticism for insurers in the past few weeks, with several interesting legal cases looming already‘. Sensibly, during the summer, the FCA acted quickly by bringing a test case on behalf of policyholders to resolve the lack of clarity that was evident when many policyholders made business interruption claims. At the time, the insurers Hiscox and QBE were particularly in the firing line, but ultimately the defendants in the test case also included other well-known insurers such as Royal & Sun Alliance, Zurich and Ecclesiastical.
So, has the test-case resolved the BI coverage issue? Will all those unfortunate claimants now be able to imagine their businesses surviving thanks to an insurance claim payment? Typically, it depends. In simple terms, the FCA hailed the judgment as ‘a significant step in resolving the uncertainty being faced by policyholders’ , which we must believe is true; certainly, the judgement went strongly against the insurance industry’s arguments. However, true certainty for policyholders depends on what sort of disease or denial of access clause each policy has and the judgment did not find each of the eight defendant insurers liable across all of the 21 sample policy wording variations. For example, the Hiscox press release stated: ‘The Judgment has now been delivered by the High Court of England and Wales – the High Court found that there could be cover for some Hiscox policyholders in certain circumstances. Each customer’s claim is different and the ultimate outcome will depend on each claimant’s policy and individual circumstances’. It went on to say that ’fewer than one third of Hiscox’s 34,000 UK business interruption policies may respond’. The Australian insurer QBE commented similarly: ‘The court ruled in favour of QBE with respect to two out of three of QBE’s notifiable disease policy wordings examined and in favour of insurers generally with respect to denial of access policy wordings. However, the Court ruled in favour of insureds with respect to one of QBE’s notifiable disease policy wordings’.
Thus more pain is likely for some, but overall it must surely be viewed as a positive outcome for policyholders and many of those affected will now receive at least some claim payments. The Hiscox Action Group observed that ‘hundreds of Hiscox Action Group members who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance’. The Action group’s lawyer stated that it is writing to Hiscox Insurance ‘demanding immediate interim payments for many clients who are struggling to survive’. The judgment has also clarified some key points:
- Most of the disease and so-called hybrid  clauses in the sample of insurance policies do provide cover;
- The denial of access clauses are more restrictive and only some will provide cover, depending on the detail of the clause wording;
- The Coronavirus pandemic and government’s response were a single cause of the covered loss. The insurers had sought to reject some BI claims using a causal test decided in Orient Express Hotels Ltd v Assicurazioni Generali SpA (2010)  during the aftermath of Hurricane Katrina; this judgment rejected these arguments.
Although the judgment could be appealed and many affected policies will be subject to extensive negotiations before claims payments are made, this judgment is a victory of sorts for policyholders. With some insurers now licking their wounds, the industry is now assessing whether the now more likely payments will damage the insurance sector financially; the credit rating agencies’ assessment so far is that this development is manageable and will have little to no effect on their financial ratings. However, reputations are harder to repair; insurers such as Hiscox must be wondering whether rejecting these claims was worth the almost overnight shredding of a hitherto well-deserved strong brand name built up over 40 years.
The wider lesson for the insurance industry is that clarity of intent, policy language and action after an event are all basic requirements for policyholders; on this theme the last word about this judgment must go to the CEO of the London and International Brokers Association: ‘clients deserve clarity, and the fact that this case had to take place at all is a rebuke to our industry and the often obscure language we use. Customers deserve to understand exactly what it is they are getting in language they recognise’ .
About the Author
Mark Tetley has wide experience gained from senior positions across the London insurance market as both an underwriter and a broker, in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.
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 The case defined a hybrid clause as one that combined elements of both disease and denial of access clauses.