High court rules in favour of policyholders in insurance test case

Ruling could pave the way for business interruption payouts

BUSINESSES across the UK could be in line for payouts from business interruption insurance policies after a test case at the High Court in London.

The Financial Conduct Authority (FCA) had brought a test case to the court after businesses across the country were denied payouts when insurance companies argued that policies did not cover closure due to COVID-19.

The FCA said it was looking for “clarity on specific policy clauses” to determine whether policies covered forced closure due to the pandemic or not. It presented 21 different policy wordings to the court, covering three main policy provisions: disease; prevention of access/public authority; and hybrid.

The High Court today (September 15) issued a 160-page judgement which found that the insurers were liable to pay out in most, but not all, of the policies presented.

The FCA welcomed the judgement, which it said “found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues”.

Christopher Woolard, the FCA’s interim chief executive, said the ruling “is a significant step in resolving the uncertainty being faced by policyholders”.

“Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.

“They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

Legal firm Herbert Smith Freehills represented the FCA. A summary of the judgement can be found on the firm’s website here.