Earlier this year the Supreme Court handed down judgment in FCA v Arch Insurance (UK) Limited and others  UKSC 0177. The judgment is complex and runs over 114 pages, but we have sought to address some of the key points and most frequently asked questions below.
WHAT WAS THE CASE ABOUT?
As a result of COVID-19, many policyholders whose businesses were affected suffered substantial losses. This led to a large number of claims under business interruption policies. Whilst some insurers accepted liability, others had disputed it leading to concern about the lack of clarity and certainty surrounding the wording of policies and their coverage.
In light of this, the Financial Conduct Authority (‘FCA’) issued proceedings to seek declarations as to the correct interruption of business interruption policy wordings.
WHO DOES THIS IMPACT?
21 sample wordings were considered as part of the claim. It was estimated by the FCA that the sample wording was similar to 700 different policies used by 60 different insurers. As a result, the decision would be likely to impact an estimated 370,000 policyholders.
A consolidated list of the insurers and business interruption policies that would be affected by the test case was published by the FCA, who have also produced a Policy Checker, which can be found at https://www.fca.org.uk/firms/business-interruption-insurance/policy-checker
WHAT DID THE COURT DETERMINE?
On 15 January 2021, judgment was handed down which favoured the FCA’s broader interpretation of sample wording, which was grouped into three broad categories:
- ‘Disease clauses‘ which provide cover where a business is interrupted as a result of a notifiable disease.
- ‘Prevention of Access clauses‘ which provide cover where access to a business has been prevented or hindered as a result of government or local authority action or restriction.
- ‘Hybrid clauses‘ which relate to both restrictions imposed on the business’s premises and to the occurrence or manifestation of a notifiable disease.
Whilst the FCA’s interpretation in the majority of the samples reviewed was favoured by the court, it does not follow that the defendant insurers are liable across all 21 samples. Accordingly, it remains for the policyholder and their advisers to consider how the principles established in the detailed judgment apply to the circumstances and the wording contained in the insurance policy to calculate cover, indemnity and the loss.
HOW DO I MAKE A CLAIM IN RESPECT OF MY BUSINESS INTERRUPTION POLICY?
The first port of call should be to make a claim directly with your insurer. Upon completion of a claim form from, the insurer will consider the circumstances surrounding the claim and advise whether they believe it falls within the policy terms.
In the event the claim is refused, you can then consider making a complaint to the Financial Ombudsman (see below) or take steps to issue proceedings (see below).
MY CLAIM HAS BEEN REFUSED BY MY INSURER, SHOULD I MAKE A COMPLAINT TO THE FINANCIAL OMBUDSMAN?
If your claim has initially been refused you may be eligible to use the Financial Ombudsman’s complaint scheme.
In order to make a complaint you will need to review your policy wording considering the principles set out in the recent judgment. You may wish to seek legal advice as to the correct interpretation of the policy and whether your losses are recoverable.
When submitting a claim, you will be required to provide copies of any correspondence exchanged with your insurer on the issue. Accordingly, copies of all correspondence should be kept along with notes of conversations.
Please note that the complaint procedure will not be appropriate in all claims. Only micro enterprise businesses will be eligible. A micro-enterprise is a business which employs less than 10 people and have an annual turnover or balance sheet that does not exceed 2 million.
There is also a limit on how much the Financial Ombudsman can award, which is capped at £355,000.
CAN I TAKE LEGAL ACTION AGAINST MY INSURER?
Before commencing any action you will be required to send a letter before action to the proposed defendant insurer in accordance with the Practice Direction on Pre Action Conduct and Protocols (‘the Protocol’).
When sending the letter, the court will expect the parties to act reasonably by exchanging enough information and documents with a view of resolving the dispute. The insurer should then be given reasonable time to respond (usually between 14 to 30 days) before making a claim. A failure to comply with the Protocol can lead to issues on costs.
If the potential claim is not resolved by way correspondence, then proceedings will have to follow. In certain circumstances a claim can be brought in the Commercial Court under the Shorter Trials Scheme set out in Practice Direction 57AB. This provides a quicker and cost-effective route to trial and judgement can in circumstances be awarded in a matter of months.
HOW CAN FLETCHER DAY HELP?
The judgment in the case is complex and those who have been affected will need to review the wording of their policies to establish how the principles set out in the judgment apply.
The commercial dispute resolution team at Fletcher Day can provide advice on the correct interpretation of your business interruption insurance policy and if necessary, make a claim on your behalf.
We can offer a wide range of funding options which include ‘no win no fee’ agreements.
If you need advice or would like to make a claim please submit an enquiry.