Update on Business Interruption Insurance Claims
The eagerly awaited decision from the UK Supreme Court in FCA v Arch & ors was delivered on the 15 January 2021. It is a positive result for insureds / policy holders.
Here we set out a summary of the main findings from the UK Supreme Court decision: –
1. Disease Clauses
The UK Supreme Court disagreed with the prior UK High Court decision as to the meaning of Disease clauses and found that there was only cover for local occurrences of the pandemic (within the geographical limits stipulated in policies, usually 1 or 25 miles).
However, this ‘win’ for the Insurers was short-lived due to the Court’s findings on causation, meaning that all occurrences of diseases (inside and outside of the geographical limits) were equally effective causes of Government restrictions and the subsequent losses. Therefore, insureds were entitled to recover for the effects of the national restrictions on their businesses subject to proving the occurrence within the geographical limit set out in the policy.
2. Prevention of Access (POA) & Hybrid Clauses
The UK Supreme Court took a different view to the UK High Court on the POA and Hybrid clauses. The UK High Court found that in respect of certain clauses a premises had to shut down entirely before cover was triggered. This was significant from the point of view of premises that continued to carry on or commenced a takeaway service. The UK Supreme Court held that this view was too restrictive and there was cover where a discrete part of the business ceased or was unable to be used.
3. Trends Clauses & pre-trigger losses
The Supreme Court also rejected attempts to limit cover by relying on the Trends clauses and pre-trigger losses. A Trends Clause appears in most policies and allows an insurer to take account of a downturn in business when compared with the previous year’s trading. The Insurers relied on this clause and the immediate downturn in business leading up to the triggering of the policies in March 2020 (pre-trigger losses). The Supreme Court rejected this approach and held that the Insurers could not rely on the effects of Covid-19 to reduce cover and reduce damages.
Comment on the Supreme Court Decision:
The UK Supreme Court decision is very positive for insureds where their policies potentially cover the effects of Covid-19. The case did not consider policies that require an occurrence of a notifiable disease “at the premises”. It remains to be tested whether there is cover in respect of these policies but based on some commentary in the UK Supreme Court decision, this remains a difficult argument.
For those policies which are not “at the premises” and require an occurrence of a notifiable disease within a geographical limit or where no geographical limit is specified, the UK Supreme Court case represents a big step forward to successfully resolving such claims.
Next Steps in Ireland:
The UK Supreme Court decision has decided the applicable legal principles largely in favour of insureds and this should pave the way for the settlement of all qualifying claims in the UK. It is hoped that insurers in Ireland will follow suit and that they will no longer rely on these legal principles to reject claims. It should now be down to a question of examining the wording of policies to see if the effects of Covid-19 are arguably covered.
It remains to be seen whether the Irish High Court will agree with the UK Supreme Court. The decision in the FBD cases will now be delivered on the 4 February 2021 to allow the parties and the court to consider the UK Supreme Court decision.
Critical Arbitration Time limit:
Members should take note that various policies contain an arbitration clause and, in some instances, these clauses set a 12-month time limit to refer the matter to arbitration. This 12-month period expires in March 2021 so it is critical that this date is not missed as it may bar a future claim for any policy holder who is subject to such a time limit if they have not called upon the insurer to arbitrate within that time limit.
- Lorraine Compton: firstname.lastname@example.org
- William Aylmer: email@example.com
- Shane Dunlop: firstname.lastname@example.org
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