The business interruption claims test case brought forward by the Financial Conduct Authority (FCA) has dominated headlines and discourse across the UK insurance industry over the last several months. When the judgement of the case was issued by the High Court in September, there was an expectation that aspects of the decision would be appealed, and this proved to be accurate as many of the key findings were recently put to appeal at the Supreme Court.
The appeal hearings at the Supreme Court concluded on November 19, and the question now is when a final decision is likely and what the implications of any outcome may be for policyholders and for the insurance industry. Providing an overview of the timeframe of the appeal process at a recent webinar held by Fenchurch Law, partner at the firm, Aaron Le Marquer (pictured) highlighted that the intention of the court is to make its judgement ‘as soon as possible’.
“The court recognised the importance of the case and its urgency,” he said. “It certainly didn’t rule out producing its judgement before Christmas, but it said it couldn’t guarantee that it would come before Christmas. That suggests to me that they are hoping it will. If not, they said it would be sometime in January. And once we have that, it’s final… And once those decisions become final, the clock’s restarted on any potential affected claims under the FCA guidance.”
Beyond the Supreme Court judgement, however, there are a number of further issues that will remain outstanding and key among them is the issue of trends clauses. Whatever the Supreme Court decides in terms of whether the effects of COVID-19 are to be factored into the application of trends clauses for covered claims, he said, trends have to be taken into account. The calculation of claims and the application of those clauses is often contentious because it deals with the hypothetical.
“And here we are dealing with hypotheticals in an extraordinary situation in which the whole world economy has come grinding to a halt,” he said. “So, imagining what would have happened in the absence of that becomes even more fantastical. What other trends would have applied in the absence of COVID-19?
“Some policyholders who have very long policy periods going into next year might need to take into account things like Brexit. I hesitate to raise ‘the B-word’ at this stage but it’s looming, as we know, and it’s going to be a contentious issue in lots of contexts, and I’ve no doubt in the context of BI claim calculation going forward too.”
For many, the consideration of whether other wordings not covered by the FCA test case might be litigated in the future is a pressing concern and Le Marquer noted his belief that there are very few wordings that relate to those issues, in terms of different types of disease wordings, that will be litigated. Nonetheless, he said, there may be litigation over related issues going forward.
An issue which has not been decided by the Supreme Court and may well have to be decided by future litigation is aggregation. That is the question of whether any applicable sub-limit of liability applies to any one loss, any one claim, any one occurrence, any one event or any one originating cause under the policy.
The question is whether multiple sub-limits are recoverable in respect of the policyholder’s COVID-19 losses, Le Marquer said. Particularly under non-damage BI extensions, which typically have much lower limits of liability than the main damage BI insuring clause, usually 10% or even less, it becomes very important as to whether the policyholder is able to claim for more than one loss/claim/occurrence/event/originating cause, as applicable, under the policy. The answer to this, he stated, will depend on the insuring clause under which indemnity is sought, any other aggregating provisions in the policy, and consideration of the time, place and the nature of the losses suffered.