Since the Supreme Court judgment in the FCA Test Case on 15 January 2021, there have been 17 Financial Ombudsman Service (FOS) decisions relating to complaints from policyholders who had made business interruption insurance claims due to the impact of COVID -19.
Not one of these FOS decisions upheld the respective policyholder's complaint.
The FOS has a two-stage procedure, whereby complaints are looked at first by an adjudicator and then by an ombudsman if necessary. An adjudicator's decision isn't binding on the parties, so if either party disagrees with an adjudicator's decision, they may request that the matter be determined by an ombudsman. An ombudsman's final decision is published on the FOS website and cannot be appealed.
It may therefore be the case that some insurers have been settling claims prior to the FOS making a final decision. This may be because insurers have not sought to appeal a decision made against them by an adjudicator, perhaps to avoid publicly exposing an undesirable result should an appeal be unsuccessful.
Whilst the number of settlements that have been made prior to a final decision of the FOS remains unclear, the statistics regularly published by the FCA purport to show the number of BI claims relating to COVID-19 which have been paid out by insurers to date. Unsurprisingly, relative to the number of claims made, the number of claims that have been accepted and paid is not high.
Equally, the number of outstanding complaints that have been made to the FOS, as well as how and when they are likely to be resolved, also remains unclear.
Whilst each of the 17 published decisions turn on their own facts and do not set a binding precedent, they do provide a useful indication of the views formed by the FOS. The issues faced by policyholders against a range of insurers in these FOS decisions follow a common theme. The policyholder holds a business protection insurance policy with the insurer. Where it considers the policy should respond, the policyholder brings a claim under its policy for its losses due to the national government-imposed lockdown(s) in response to the COVID-19 pandemic. The insurer denies the claim on the basis that the policyholder didn't have cover for the losses it was claiming for.
With respect to a number of the complaints, each of the denied claims seeks to rely on the "Specified Illnesses" clause within the policy wording. In these circumstances, COVID-19 is not listed within the specified illnesses and therefore no cover is afforded by the policy. Although COVID-19 was not known at the time of drafting the policy, this does not change the outcome of the FOS's decision to not uphold these types of complaints.
Covid-19 needing to be specifically included within a defined list has also been the reason for a number of the other complaints not being upheld by the FOS. In another example, a landlord with a property owners insurance policy with UK Insurance was denied cover for its loss of rent, arising from the government's restrictions requiring the premises to close. As the policy wording set out a specified list of diseases covered under the disease extension, and in the absence of any physical damage to the property, the insurer denied the claim and the FOS agreed.
Pre-Supreme Court decisions
Prior to the Supreme Court's decision in the FCA Test Case, the FOS also considered a number of complaints made in relation to business interruption as a result of COVID-19. None of these complaints were upheld either.
Many of these complaints again related to "Specified Illnesses" wording. The FOS was also asked to consider whether COVID-19 could be caught under "Plague" wording. In the cases they have already decided, the FOS were of the opinion that it could not.
There are a few inferences that can be drawn from the FOS's decisions that have been published since the Supreme Court judgment in the FCA Test Case.
The Supreme Court considered a number of other issues relating to business interruption insurance resulting from the government's response to COVID-19. These included inter alia issues relating to "vicinity" and "restrictions imposed" wording. Yet none of the FOS's decisions address complaints relating to any of the numerous wordings considered by the Supreme Court.
Instead, the recent decisions published by the FOS relate to the same issues that it was deciding on prior to the Supreme Court judgment. These decisions do not, therefore, build upon the Supreme Court's judgment whatsoever.
On this basis, it appears that the FCA Test Case did not have the intended result. In hindsight, the Supreme Court's judgment was too narrow in scope and, unless cases fall neatly within the wordings considered by the Court, insurers remain reluctant to open the door to further liability.
It might be the case that some await the declarations of the Supreme Court to provide further clarity for the vast number of claims that remain outstanding. However, given that the purpose of the declarations is only to summarise the Supreme Court's judgment, it is unlikely that the publication of the declarations alone will realistically trigger any further action.
This is a difficult realisation for policyholders, many of whom hoped and expected the Supreme Court judgment to draw matters to a close.
It remains to be seen how insurers will deal with various outstanding issues, notably including claims relating to the later lockdowns imposed by the government. In the absence of any further clarity from the courts, it may well fall upon the FCA and the FOS to pro-actively take steps to assist in seeing these issues resolved.