Fri 14 May 2021

Business Interruption Insurance

It was reported last week in the Financ… Times that hospitality groups are threatening legal action against their insurers to force the insurers to make multi-million pay-outs for what they say are their valid business interruption insurance claims. 

It doesn't really come as much of a surprise that the insurers are trying to avoid paying out on the claims - there is a significant amount of money at stake - but for the businesses involved the lack of a pay-out from policies they had taken out and paid a premium for could be catastrophic.  So, it's a high stakes game. 

The insurers in this instance are arguing that the well-publicised Supreme Court decision in the FCA test case (which was largely in favour of the policy holders) doesn't apply to the particular terms of their policy whereas the policyholders think it does - so another battle is looming.  The Supreme Court decision applies to a set of 21 policy wordings from a pool of eight particular insurers, and so is binding on those eight insurers.  However, the decision also provides authoritative guidance for the interpretation of similar policy wordings and claims.  The difficulty faced by the policyholders in the FT article is that - according to the insurers - their policy wording is of a type not considered by the Supreme Court and considered by the High Court as not providing coverage.  The policyholders dispute that and, given the value of the claims, it's likely that another court battle is looming.

The FCA has already made it clear that it expects insurers to pay out promptly in cases where the decision does apply. But it has also recognised that further proceedings may be necessary.   To deal with that, the FCA has also said that the insurers should "seek to narrow the issues in dispute to ensure that the litigation can proceed in the cheapest and quickest way possible, reflecting the firm’s obligation to act fairly, honestly and professionally in the best interests of its customers". It has also said that if the insurers win the subsequent cases they should recognise the financial burden placed on policyholders to bring a legal case to get clarity on the terms of their policy and therefore should agree to (1) pay the policyholders' reasonable costs, and (2) not to seek costs against the policyholders.

It will be interesting to see if insurers go along with that in the event of a win.  Either way, disputes over the coverage provided by business interruption insurance are not going away any time soon. 

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