We are very aware that the COVID-19 pandemic is causing hardship across the UK economy and that many are experiencing difficulties in this unprecedented situation. We also appreciate that the Financial Conduct Authority (FCA) has received a number of questions and concerns from customers across the insurance industry where their business interruption policies do not cover COVID-19 losses. As such, we agreed to participate in a ‘Test Case’ with the FCA to provide clarity and certainty to customers because we believed this was the right thing to do.
The Test Case High Court Judgment
The High Court Judgment published on 15 September 2020 stated that losses arising from the closure of businesses due to the Government’s action in response to the COVID-19 pandemic are not covered by Ecclesiastical’s Business Interruption policies and therefore we are not required to pay claims on those policies.
We recognise that whilst the ruling supports the position we have taken throughout this period, the Judgment will clearly be disappointing to some customers. We are very mindful that this is an unprecedented situation that has been tough for customers and wanted to take part in the legal proceedings so we could gain maximum clarity for all in the shortest amount of time.
Supreme Court Appeal Judgment
The Supreme Court issued its Appeal Judgment on 15 January 2021. The proceedings did not involve Ecclesiastical. The original High Court ruling found that losses arising from the closure of businesses due to the Government’s action in response to the COVID-19 pandemic are not covered by our policies and the FCA confirmed in October 2020 that it did not intend to Appeal that decision (see FCA’s summary table).
This means that the Supreme Court Judgment does not change the original High Court ruling that claims on Ecclesiastical’s Business Interruption policies are not payable. We recognise that this has been a difficult and uncertain period for customers and hope the Courts’ rulings provide the certainty and clarity that the Test Case was designed to create.
Background: What the FCA was doing
As recap, the FCA defined the ‘Test Case’ as:
“The proceedings brought by the FCA to resolve uncertainty as to whether certain non-damage business interruption insurance policies respond to claims related to the coronavirus pandemic.”
And that during the Test Case:
“acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage. We are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.”
Further information from the FCA, legal submissions and transcripts from the Test Case hearings and the Judgment can be found at www.fca.org.uk/firms/business-interruption-insurance
The types of claims the FCA were looking at
The FCA has set out that:
“Our view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. This case is focused on the remainder of policies that could be argued to include cover.”
And it has defined a ‘Potentially Affected Claim’ as:
“A claim made under a relevant non-damage business interruption policy for losses relating to the coronavirus pandemic where the outcome of the claim, including issues of causation, may be affected by the final resolution in the test case, whether or not the insurer has declined the claim by issuing a declinature letter or has made an adjustment or deduction for general causation.”
Recap on the High Court Judgment: what it said and what it means
The High Court Judgment published on 15 September 2020 stated that losses arising from the closure of businesses due to the Government’s action in response to the Covid-19 pandemic are not covered by Ecclesiastical’s Business Interruption policies and therefore we are not required to pay claims on those policies. It was confirmed on 2 October 2020 that the FCA would not Appeal this ruling and therefore Ecclesiastical was not part of the Supreme Court proceedings.
We recognise that whilst this supports the position we have taken throughout this period, the High Court Judgment will clearly be disappointing to some customers. We are very mindful that this is an unprecedented situation that has been tough for customers and wanted to take part in the legal proceedings so we could gain maximum clarity for all in the shortest amount of time.
Other forms of help
The Government recognises that its own actions to save lives and beat the virus have resulted in sudden and acute difficulties for businesses large and small. It has announced several very substantial initiatives to help them overcome these, a number of which may apply to your business. We would encourage our policyholders to take advantage of these where appropriate. These include loans on advantageous terms, cash grants, and employment protection measures. We recommend checking the Government website for more details and in Scotland.
We are also supporting our customers with advice and guidance, aligned to the Government’s guidelines, to help mitigate the impacts of COVID-19, which is available on our website. For specific risk advice about topics including, health and safety, fire and security, you can contact our risk experts on 0345 600 7531