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Mishcon Academy: Digital Sessions – Supreme Court Judgement: FCA Test Case

Posted on 10 February 2021

On 15 January, The Supreme Court handed down its judgment in the FCA Test Case, finding largely against insurers in the test case proceedings. It was estimated that the judgment affected some 370,000 businesses in the UK, who were now able to obtain insurance payment for claims that had previously been refused.

Chaired by Legal Director Miles Geffin, Partners Sonia Campbell and Richard Leedham, and Legal Director Ralph Fearnhead with Ben Lynch QC of Fountain Court, who represent the Hiscox Action Group and the Hospitality Insurance Group Action, discussed the judgment and what it meant for businesses.

Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.

To see the full recording of this session please click here.

Miles Geffin

Good afternoon everybody and welcome to this Mishcon Academy Digital Session on the FCA Business Interruption Insurance Test Case Litigation.  I’m Miles Geffin and I’m moderating this event.  I’m delighted to be joined today by Sonia Campbell, Richard Leedham, Ben Lynch QC and Ralph Fernhead.  So, we’re going begin with a discussion around the test case and its implications for policy holders and for insurers. 

Richard, can I begin with you?  Would you just kick off with a brief overview of the test case?

Richard Leedham

Ten months or so ago Covid obviously hit for the first time and the Government imposed all the various restrictions on us.  That very quickly led to a lot of claims being made under Business Interruption Insurance Policies and insurers pretty quickly took a view individually, one has to say but it was the same view pretty much from all of  them that claims weren’t going to be paid out.  The FCA having already written to policy holders and to insurers trying to sort of generate some momentum, came up with this plan of using the hitherto I think almost completely unknown Financial Markets List Process to bring this test case.  Corralled, cajoled one, on our side, we don’t know, eight insurers into doing that.  We inputted the selection process of policy wordings and so wordings that Sonia and I and our teams were advising on were included in that case.  And the case was run as a test case in the Commercial Court.  It was felt helpful to have a policy holder view at the table as it were and Ben made submissions for us as did Sonia’s Counsel, Philip Eadie in the first instance case to support the policy holder’s position. 

Ben Lynch

What I’d really like to do is just touch briefly on the different categories of wording.  And you’ll see the third bullet point down, those three categories, ‘Disease Clauses, Prevents of Access/Public Authority Clauses and Hybrid Clauses’.  Disease Clauses in a large part do what they say on the tin.  They are clauses… these are described helpfully somewhere as paragraph four of the Supreme Court’s judgement, clauses which in general provide cover for business interruption losses resulting from the occurrence of a notifiable disease, such as Covid-19, at or within a specified distance of the business premises.  Classic disease clause wording, ‘We shall indemnify you in respect of interruption or interference of the business during the period following any occurrence of notifiable disease’ and you’ll see one’s at the premises, you’ll see one’s within a radius of 25 miles.  This was the hybrid wording.  The Hiscox Hybrid wording and you’ll see why it’s called hybrid because it’s got both the disease elements and prevents of access or inability to use elements. 

Miles Geffin

Sonia, following on from Ben’s overview and from what he’s just said, what are you now seeing practically on disease and prevention of access wordings?

Sonia Campbell

In practical terms, I think where it leaves people with disease clauses is if you have a geographical radius limit in your policy and you can show a single case of illness sustained before the relevant Government restrictions, then you should be, and there is a case in your radius, then you should be able to claim cover from your insurers.  And we are seeing for insurers who are not part of the test case, that they are you know, in certain cases so far, abiding by that decision.  So, hopefully others will follow in the spirit of what the FCA has expected and what the judgements expect, that they will do so. 

Richard Leedham

It’s not often in fact, I’m not sure it’s ever happened before that you’ve had a regulator taking the companies that regulate ought on behalf of their own customers and making arguments for them.  So, you know just in terms of another case you had, the Financial Conduct Authority, you had eight of the insurance companies it regulated.  You had two groups of intervening policy holders represented by Mishcon.  There were actually two other groups that tried to intervene at various points and were told by the Court that it wouldn’t be appropriate for them to do so.  So, a huge numbers of parties.  You had two case management conferences which were held before the first instance trial.  That lasted two weeks.  Involved both a High Court Judge and a Court of Appeal Judge.  They then produced a detailed judgement.  They then produced a set of declarations which were anticipated by the FCA at the outset and were really there to try and provide a helpful guide for people to interpret the judgement and for lots of businesses to look at when actually assessing claims.  Whereas the normal process would involve the High Court, then the Court of Appeal, then the Supreme Court.  In this case the proceedings went straight from the High Court to the Supreme Court.  They did so incredibly quickly.  We had a four-day appeal held in the Supreme Court.  They produced a you know, very detailed further judgement.  Ben’s mentioned how many documents there were.  Literally tens of thousands of pages of evidence.  Over a thousand pages of legal submissions.  This was all held entirely remotely.  So, you know there was never anyone physically present in a Court room.  As with everything due to Covid, we’re, we’re now used to this but going back to the time the case was heard, this was you know, something which I don’t think any of us could have imagined happening sort of eighteen months ago before we came into this world.  And so you’ve had two very serious Court cases with huge numbers of parties, huge numbers of documents.  All held remotely.  All streamed over the internet.  And it’s all happened you know, pretty seamlessly. 

Ben Lynch

Some say that these policies were never intended to respond to pandemics and therefore the Court has had to sort of play around with causation to, to reach a result.  Personally, I don’t agree with that.  The proper approach to the construction of a policy is, you look at what it says and you don’t look at it with the benefit of hindsight but there are plenty of authorities and it’s a point that we made in argument which is a well-known case called Bromering, which was then considered by Lord Justice Leggatt as he was then in the Equitas case in the Court of Appeal which says that you, what you do is you look at the wording as a reasonable, objective person, i.e.  standard approach to construction, at the time of the events.  Even if those events were not foreseen.  So, foreseeability or otherwise isn’t really the touchstone of construction. 

Miles Geffin

In light of this, in light of the decision, in light of what the Justice said on the causation point, what’s actually happening on the ground now with claims?

Richard Leedham

The Supreme Court case, as we’ve said from the outset, didn’t actually consider the claims of any individual policy holders.  It considered the arguments being made by the insurers for denying claims and it’s held very clearly that in, in a large number of cases the arguments being made to deny the claims were wrong.  So, the question is, having been told that they denied the claims wrongly, what should insurers now be doing in respect of those claims?  And the FCA has said consistently and it’s reiterated this following the judgement that they should now be writing to all their policy holders, writing to all their brokers, telling everyone concerned with these policies that they are now reconsidering them and that they are reviewing them and that some of them may now be covered.  Even claims they were previously denied.  And where that is the case then it’s being made very clear by the FCA that insurers should be acting very quickly, they should be telling people they do have cover, they should be moving very quickly to adjust those claims, work out the quanta of the loss.  But also, importantly, while they’re doing this because you know a lot of these businesses have been really badly affected they should be making interim payments as soon as they establish cover is still there. 

It’s been almost ten months to the day from when the Prime Minister first announced you know, the first set of Covid restrictions in the UK and bar a few exceptions, most people who put in claims who had this cover, have yet to receive any money.  Now, in that intervening ten months, it’s been a very difficult time for businesses.  Many have had to lay off staff.  They’ve been able to afford to keep on their premises.  They’ve been doing what they can to make ends meet and sadly some haven’t been able to.  Some have gone into liquidation.  We have you know, half a dozen clients in our… in the group of Hiscox policy holders we represent for whom ten months was just too long and they’re no longer. 

It's a live issue in our ongoing claims with, with Hiscox and to be clear about that those are in arbitration.  That is a matter of public record.  It was mentioned by Hiscox’s Counsel in the Supreme Court hearing.  But obviously I can’t say anything more about that and it is a live issue.  I think, stepping back from the arguments we’re running, one can see that of course there are certain policies that were argued over before the Supreme Court well, not the Supreme Court, the first instance Court that insurers won on.  And they will say, “Well, it was entirely reasonable to run the arguments that we did.  We won on some of the points.  We lost on others.  And you, Mr Policy-holder haven’t got a complete home free run on absolutely everything and it was right for us to fight those cases.” And that’s an argument we’re going to have to deal with.  It’s not as if it was a one-off case.  One policy holder against an insurer as I said earlier, policy holders weren’t involved in the case apart from anything else where, where the defendant’s insurer was found to have you know behaved unreasonably and should have paid the claim from the very beginning on points of principal.  But I think against that is you’ve got sort of fundamental principals of English law that when a judgement comes down on a case, that is how the law always was and it does give you the starting point to say, “Okay…” and I think where this will go will be on… and Ben alluded to this earlier on… on some of the wordings, as we had clients at the very beginning saying to us when they came to us saying, “Look this must be covered.  I don’t understand what Hiscox are saying.”  Coupled with various examples of having been told as they were buying the policy just as the Covid restrictions you know, the restrictions weren’t happening but Covid was hitting “Yes, this will cover you for this type of loss.”  And then they fight through you know, as Ben was saying we’ve ended up with thousands of pages of documents, three weeks of Court hearings, three or four other interlocutory hearings, to be told in no uncertain terms if you read the judgement of Lord Briggs tucked away at the end of the Supreme Court judgement.  It’s a brilliantly devastating critique of insurers’ overall attitude towards these claims. 

Sonia Campbell

Where the disease clause is you have a specific list of diseases which doesn’t include Covid and it won’t because your policy would have been in place before Covid was known about.  Covid became a notifiable disease on the 5th of March for our purposes.  If you have a list that just lists diseases or it says, “Notifiable disease” and then “Notifiable disease is defined as a specific list” that’s called a closed list.  And you won’t have cover under that policy unless it has additional wording that says, “Or any other disease that becomes a notifiable disease etcetera.”  So, where we’re getting a lot of questions about, “Well, I’ve got disease cover but they’re saying I’m not covered” quite often it’s because of that reason. 

Richard Leedham

The last ten months in the insurance context here have completely polarised opinion.  You’ve got policy holders and yes, we represent them, we’re on that side of that fence, think insurers should all you know, put their hands in their pockets very quickly when everyone else was to some extent, particularly sort of Government.  We all had to adapt and do different things and they were seen as not doing that.  The insurer side and one of the questions, “Well, they weren’t intended to cover pandemics.  They weren’t designed for this.”  Those wordings were certainly historically aimed at localised shut downs of businesses for, for sort of local disease or bomb scares or whatever.  But the fact is, that has been fought out in the most serious way possible before now seven very senior Judges who have all found that those arguments aren’t right.  Those, the underlying arguments on causation, intent, the intent of the policy never even really came up in the, in any of the legal debate.  It was what we thought sort of underpinned insurers arguments on causation.  They were trying to argue something to demonstrate that they hadn’t intended to pick up these losses.  The Court has been clear about that.  Of course, on particular wordings as Sonia has said there’ll be uncertainty.  They’ve won on some of the wordings.  They’ve clarified that.  It really is time for them to step up, pay the businesses that they should pay, read the “Dear CEO” letter, make the interim payments that need to be paid whilst the more complex issues of adjustment.  There’s no-one saying, BI losses even for small businesses are necessarily straightforward, they need to be adjusted but money needs to start flowing from the insurance industry who receive billions of pounds of premium.  I’ll just end on one stat I read, they’ve saved £4 billion I don’t know if that’s globally or just in the UK from not paying out on motor claims because of the lack of motor accidents during the pandemic.  If that figure’s accurate you know, they’ve got the money to pay these claims.  They should be paying them. 

Sonia Campbell

The clients that we’ve all got, many of their policies have come up for renewal during this period and I haven’t seen one policy that doesn’t have an exclusion for contagious or infectious diseases.  I don’t know if anybody’s got a different perspective where they have seen that cover continue but these policies, in terms of how they operate, it’s very clear now that on renewal there won’t be cover.  In my view. 

Ben Lynch

Recently, just one example Ireland has delayed their proceedings to look at our Supreme Court judgement.  I read recently.  But there are plenty of others happening all round the world.  And it may be that our Supreme Court judgement is regarded as helpful for assisting determine those disputes but it may not be because the law is so different in those areas.  So, obviously it will be a matter of where the insurance is being provided. 

Miles Geffin

All that remains is for me to thank our panellists for what I think has been a very lively and energetic discussion.  We hope to see you all very soon in the future at Mishcon Academy Digital Sessions.  So, thank you and goodbye. 

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated, please visit Mishcon.com. 

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