To bring consistency to the legal solutions adopted in a large array of legal actions started by discontent policyholders that were denied claims payments for the financial losses suffered as a consequence of the first lockdown in the UK, the country's Financial Conduct Authority (FCA) decided to test policy wordings from across the UK insurance industry in the UK High Court. The FCA said its selection of a representative sample of wordings from across the UK industry is intended to clarify which business interruption policies respond to the pandemic and which do not and reach an "authoritative declaratory judgment" that would have wide application.
"The test case shone a light on so-called non-damage extensions to business interruption insurance. Policies for interrupted business often offer cover only if a company is forced to close as a result of physical damage to a property. But many insurance policies are sold with add-ons, which provide cover if a business is forced to close because of the outbreak of an infectious disease within a specified radius of a company's premises, typically up to 25 miles. Many insurers refused to pay out on claims after the country was first locked down in March and the coronavirus outbreak took hold, saying that such policies were not intended to cover global pandemics," Law360 explained the case, in an article that described the full story from a legal point of view.
In short, the High Court's decision provided for a solution depending on the time the business close occurred, i.e. before or after the day legislation for the lockdown was fully passed by Parliament. However, the Supreme Court decided that this was a "too narrow" view and business that closed days before this moment, following the British PM's warning that businesses should close, should also be considered for losses reimbursement as "an instruction given by a public authority may amount to a 'restriction imposed' if it carries the imminent threat of legal compulsion."
Commenting of the latest ruling, the FCA said that the insurance claims that would be paid out as a result of the judgment would be a lifeline to small businesses struggling to stay afloat.
In a larger perspective, the UK's Supreme Court decision may inspire similar positions in other countries, which may result in very large sums paid for Covid-19 related BI claims, affecting re/insurers' balance.