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Last week the High Court delivered its judgment in the FCA Test Case. This has been rightly greeted as a victory for many business interruption policyholders whose COVID-19-related claims had been rejected.
In adopting causation as the central pleading in its case, the FCA achieved a ruling going to the heart of quantum in persuading the Court that the Orient Express case was bad law, and what is known as wide area damage, when caused by the insured event, could not be used as a trend factor to reduce or eliminate insured loses. This will make a big difference to the assessment of what is recoverable by policyholders.
The Court also decided that the insured event was not COVID on its own, followed by an uninsured event, the statutorily-ordered closure. Rather, it was one composite event, disease, the government action taken to control it and the consequent interruption.
That means that almost every claim made under the “Disease” cover in the policy will have to be paid. However, there are exceptions in relation to a couple of wordings where the insured will have to show an occurrence of the disease within the area specified in the policy, rather than having the benefit of the national spread.
Things get a little trickier, though, in considering the non-damage denial of access and the public authority covers. The operation of these policies is, according to the judgment, dependent on their precise wording, and close analysis of the policy text is required, given that the Court saw many of these wordings as clear evidence of the insurer’s intention to cover only local identifiable events.
We find this disappointing. The purpose of the Test Case was to provide clarity, and the FCA hoped that that clarity would be for the benefit of policyholders. In this section of the judgment – and we admit here that we are currently relying on commentaries provided by specialist lawyers, as we have so far only read selected sections of the 150-page judgment – the judges seem to have concentrated on insurers’ presumed intention by focusing on specific words such as “event” or “danger” in order to find a narrow and localised reading of the policy language. This feels at odds with other aspects of the decision where cover has been identified. We expect the FCA to come under pressure to appeal such aspects but that decision is not risk free.
Decisions on possible appeals, probably direct to the Supreme Court, have to be made next month, and we hope that the FCA will consider an appeal on these items where, to us, it seems that clarity is limited.
By the same token, of course, defendant insurers may want to lodge an appeal against those elements of the judgment unfavourable to them. We are working and shall continue throughout this process to work with specialist coverage lawyers to provide a seamless liability and quantum service, details of which will follow. We do expect some admissions of liability almost immediately and will start work on the adjustment of those claims at once.