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Judgment delivered in COVID-19 business interruption insurance test case

On 15 September 2020, the High Court in London handed down judgment in the test case brought by the Financial Conduct Authority seeking legal clarity on the meaning and effect of non-damage business interruption (BI) insurance policy wordings.

What did the court decide?

The court ruled that some of the sample policy wordings that it was asked to interpret in principle, do provide cover for BI losses suffered as a result of COVID-19. The court did not find that the defendant insurers that agreed to be part of the case are liable across all of the 21 different types of sample policy wording that were considered. While the test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers, each policy must be considered against the judgment to establish what it means for that particular policy.

What does this mean for businesses with BI cover?

Policyholders with affected claims can expect to hear from their insurer shortly.The FCA has published a press release and updated its webpage on the test case to summarise the key aspects of the judgment and outline the next steps.

There remains a possibility of an appeal by either the FCA or the defendant insurers. Any appeal is likely to leapfrog the Court of Appeal and go directly to the Supreme Court. Given the importance of the case, it is hoped that the Supreme Court would deal with any appeal before the end of this year.

Unless successfully appealed, the judgment is legally binding on the defendant insurers regarding the interpretation of the representative sample of policy wordings considered by the court. The FCA notes that it also provides “persuasive guidance” for the interpretation of similar policy wordings and claims. This guidance can be taken into account in other court cases including in Scotland and Northern Ireland, by the Financial Ombudsman Service. The FCA can also use the guidance when considering whether insurers are handling claims fairly.

If you require any advice on BI insurance or other insurance claims, please contact Gordon Deane.

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