COVID-19 business interruption claims expected following ruling in FCA test case

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The ruling in a business interruption test case brought by the Financial Conduct Authority (FCA) means that thousands of businesses may be entitled to insurance payouts, having suffered financial losses due to the impact of COVID-19 on trading.

The FCA brought the test case to get clarification over disputed interpretations of 21 sample policy wordings. On 15 September, the High Court ruled that ‘disease’ clauses in some policies should cover the disruption caused by the pandemic.

Running to 162 pages, the judgment provides some guidance on the issue which has beset the commercial world since lockdown began and will help resolve some of the disputes that have resulted between policyholders and their insurers.

It’s widely being seen as a victory of sorts for policyholders, as some successful claims based on the disruptive effects of COVID-19 can now proceed. However, the FCA has warned that not all of the policy wordings involved in the test case will cover this situation and each must be considered in direct relation to the judgment. Crucially, however, the outcome of the test case means that policyholders will no longer have to negotiate the issues individually with their insurance companies.

The onus will now be on insurers to progress claims deemed viable under the judgement and explain the relevant process to those policyholders affected. However, there is also the possibility that the insurers involved in the case could appeal against the ruling, although it’s hoped that any such action will be completed in a timely manner to avoid any further uncertainty.

Thousands of small businesses with policies containing “non-damage” business interruption clauses which don’t rely on physical damage to cause loss of revenue are now expected to be entitled to financial cover. It’s also anticipated that the judgment will encompass a wider range of policies not included in the test case.