Business Interruption (BI) and Coronavirus – You may be covered Update 3

We have previously confirmed in our earlier updates that you may have some cover for interruption to your business as a result of coronavirus. In the May update we informed you that the Financial Conduct Authority (FCA) had proposed a legal test case to determine a number of coverage issues common to the majority of coronavirus business interruption claims.

The FCA have now published details of the test case and have selected seventeen Policy wordings as a representative sample covering the common issues with coronavirus business interruption claims. Eight insurers have been invited to participate in the proceedings, including Hiscox, MS Amlin and QBE, although other insurers with materially identical policy wordings will also be affected by the court’s decisions.

The focus of the proceedings will be on the coverage provided by ‘non-damage’ extensions to business interruption policies, including Non-Damage Denial of Access, Infectious Disease and Public Authority clauses with the intention to resolve some key contractual uncertainties and causation issues common to a majority of disputed coronavirus claims. These include the following:

List of Key Issues

• What is meant by ‘interruption or interference’ and is closure required in whole or in part?
• Does “notifiable disease” or “human infectious” or “human contagious disease” include COVID-19?
• If the disease is required to be in the “vicinity of the insured premises” what does this mean?
• What is required by way of proof if the policy requires that the disease must exist within a geographical limit of the premises (e.g. 25 miles)?
• What is the meaning of an “occurrence” of notifiable disease or an “outbreak” of notifiable disease?
• What proof is required to show prevention or hindrance in access to or use of premises?
• What is meant by “actions”, “advice”, “restrictions” imposed by government or other authority?
• What is meant by an “emergency likely to endanger life” (or similar)?
• What is meant by “public authority” or “competent local authority”?
• What are the relevant causal links that must be established depending on the words used in the policy?
• Is there more than one potentially operative cause of loss, and if so what is the effect on recovery?
• What effect do any trends clauses have on the application of causation arguments?
• Do micro-organism, pollution or contamination exclusions act to exclude the losses?

Timeframe and Procedure

The FCA have started proceedings in the High Court and there will be the opportunity for policyholders and other stakeholders to comment (this can be done via the FCA website) once insurers have filed their defences, which should be by 23 June 2020. There will then be several other procedural steps before what is expected to be an eight-day court hearing during the second half of July 2020.

There is the possibility of an appeal by either the FCA or any of the participating insurers in relation to any particular issue, although the intention is to obtain a judgement as soon as possible and the parties have agreed to explore the possibility of an expedited leapfrog appeal to the Supreme Court if necessary.

The FCA has published a number of documents and information relating to the test case and all documents can be accessed at the FCA website

Next Steps

Assuming the FCA proceedings are successfully completed and not subject to a protracted appeals process, the court case should provide a degree of certainty in relation to the vast majority of outstanding coronavirus business interruption claims. The policy wordings that are the subject of the proceedings will obviously have been tested in court, but the FCA have instructed all insurers to review their policy wordings and claims (including those already declined) in the light of the court findings.  

No doubt some claims will still need further consideration and assessment based on their individual circumstances and where cover does apply, negotiation on the quantum of the claim, but the FCA’s test case should narrow the issues in dispute.

Our next communication will probably be once the outcome of the test case is known and will outline the options available and information required if claims can be progressed, but if you have any queries in the meantime, please speak to your usual Nsure contact.