At the beginning of March 2021 we wrote about the potential for fresh litigation in light of the outcome of the Supreme Court's ruling in the FCA Test Case and the ongoing uncertainty for many policyholders; especially those whose policy wordings were not expressly considered as part of the FCA Test Case. Unfortunately, some 15 months after many claims were initially made, nine months after the High Court's judgment, and five months after the Supreme Court's judgment, the uncertainty for many remains.
FCA Test Case Supreme Court Declarations
As the Supreme Court judgment ran to hundreds of pages, the Court's findings were to be distilled into a succinct list of the declarations made by the Court. This was intended to provide policyholders with clarity as to the Supreme Court's findings.
The Supreme Court's judgment was handed down on 15 January 2021. Five months on, however, the declarations have still not been finalised and there is no clear sign of when they will be. Initially, there was a dispute between the parties to the Test Case appeal as to the form that a number of the declarations should take. The disputed declarations were subsequently referred to the Supreme Court for a ruling on their correct interpretation, and at the time of writing have not yet been finalised.
Accordingly, the ongoing dispute means that many policyholders who wish to rely on the Supreme Court's judgment and declarations for guidance as to whether their claims are covered by their policies are still in limbo. In turn, many insurers continue to delay in paying claims.
Non-Test Case Wordings
For policyholders whose precise policy wordings were the subject of the FCA Test Case proceedings, there should be clarity regarding cover in principle and the position is helpfully set out in a table produced by the FCA. As of 14 June 2021, the FCA has also published the latest data (as of 5 June 2021) from all affected insurers on the progress of their non-damage business interruption insurance claims.
For policyholders with other wordings that were not considered as part of the FCA Test Case, the position may still be unclear in a number of respects. Insurers are continuing to deny many claims in circumstances where the policy wording does not precisely match the wordings in the Test Case.
Additionally, many insurers are continuing to deny cover for businesses that, despite effectively having the wordings considered in the FCA Test Case, do not precisely mirror the categories of businesses ordered to close by the Government. Some insurers continue to take technical defences regarding the specific use of premises and the application of the Government restrictions, despite policyholders' strong arguments as to why the restrictions were applicable to their businesses.
This position of denying claims is mirrored in insurers' overall response to subsequent claims relating to the second, third and localised lockdown. Whilst specific claims would depend on whether they fall within a policyholder's individual policy period, the reasoning used by the Supreme Court in relation to new "occurrences" or "events" arguably could apply equally to new regulations / restrictions brought in by the Government after the March 2020 restrictions (which were the only restrictions considered by the Courts). Insurers, however, again appear reluctant to indemnify policyholders for these claims, with many denying cover entirely.
For a significant number of policyholders, and despite the FCA "Dear CEO" letter of 22 January 2021 urging insurers to resolve claims promptly following the Supreme Court judgment, final responses from insurers remain outstanding in respect of the reassessment of policy coverage in light of the Supreme Court judgment. Some insurers have either blamed the delay in response on the delayed finalisation of the declarations, and others have failed to respond at all, blaming the delay on the complexity of claims. As a result, we are starting to see the commencement of more Covid-19 related litigation.
Further Litigation
As anticipated in our previous article, litigation has been commenced in a number of instances in an attempt to resolve issues not covered by the FCA Test Case. For example, proceedings have been commenced by the restaurant group Corbin & King Ltd against AXA in relation to business interruption aggregation issues. The claim should provide clarity on whether losses at separate locations and for separate restrictions are different "incidents" under the specific policy wording and therefore whether separate limits of indemnity can apply to each. We are aware of other claims which may also be brought in the coming months in court and in arbitration under different policy wordings and against different insurers, some of which would follow the "test case" process envisaged by the FCA in its January 2021 "Dear CEO" letter; this ought to mean that the insurer will absorb the policyholder's reasonable legal costs of bringing the claim with the objective of providing clarity on the particular issues.
The elephant in the room – which may lead to further litigation – concerns wordings with "at the premises" but no specific radius provisions and also "in the vicinity" – where the Supreme' Court's reasoning gives rise to potential issues in connection with the Divisional Court's first instance judgment.
Future Insurance
Whilst many policyholders are encountering the issues set out above, they are reaching a double set-back on policy renewal. All renewals of business interruption policies that we have so far reviewed contain exclusions for COVID-19 or more generally for 'communicable diseases'. Insurers are not taking any chances.
Policy premiums have also been significantly increased by a number of insurers – in part one assumes to recover their exposure to policyholders following the FCA Test Case. In circumstances where policies now expressly exclude COVID-19 and communicable diseases, this rise in premiums may be regarded at best as unfair.
Conclusion
The FCA Test Case has undoubtedly resulted in many policyholders recovering business interruption losses from their insurers – but the journey has less than straightforward. For others, the journey continues and the road ahead still looks to be bumpy. The next round of litigation will, we hope, narrow further some of the outstanding coverage issues between policyholders and insurers – but disputes on these issues look set to continue for many years ahead.