The Supreme Court Insurance Ruling and What This Could Mean.
What’s the Story?
Hundreds of thousands of small businesses that were forced to close during the Covid-19 pandemic are expecting to receive payouts on insurance claims worth in excess of £1bn.
The historic ruling was handed down by the Supreme Court on 15 January 2021. The ruling appears to be the climax of the FCA’s test case brought back in June on behalf of over 370,000 policy holders.
For those unfamiliar with the timeline of this case: the FCA began a test case in June 2020 on behalf of small businesses, citing “genuine doubts” over the interpretation of policy wording in the context of the Covid-19 pandemic. Seeking to provide clarity for both policyholders and insurers, it selected a sample of 21 types of policy issued by eight insurers as the basis of the test case.
The High Court, in September, found that most disease clauses and the certain prevention of access clauses provided cover, and that the pandemic, and subsequent government response, caused the Business Interruption loss. The affected insurers appealed those conclusions in a leapfrog appeal directly to the Supreme Court; however the Supreme Court dismissed these appeals.
Pinsent Masons summarised the Supreme Court’s dicta as such: The Supreme Court ruled that cover may be available for partial, as well as full, closure of premises, and for mandatory closure orders that were not legally binding, such as instructions given by the UK government before relevant statutory instruments were passed to give those instructions force of law. It also ruled that valid claims should not be reduced because the loss would have resulted in any event from the pandemic.
The judgement means that 14 of the 21 types of policy including in the sample may provide cover. However, it will be up to the insurers to determine how much is payable on each individual case, this will be based on the guidance in the judgement and guidance yet to be published by the FCA.
The Supreme Court’s full judgement can be read here: https://www.supremecourt.uk/cases/docs/uksc-2020-0177-judgment.pdf
How will this affect law firms?
Several major city firms were instructed to act on behalf of clients in this case, I have listed these below for convenience:
· Hebert Smith Freehills LLP on behalf of the FCA
· Allen & Overy on behalf of Hiscox Insurance
· Simmons & Simmons LLP on behalf of Argenta Syndicate Management
· DAC Beachcroft LLP on behalf of MS Amlin Underwriting Ltd
· Clyde & Co LLP on behalf of QBE UK Ltd, Arch Insurance (UK) Ltd, and Zurich Insurance Plc
· Mishcon De Reya on behalf of Hiscox Action Group
· DWF LLP (Manchester) on behalf of Royal & Sun Alliance Insurance Pl
Insurance law expert, Rebecca Carrera, of Pinsent Masons briefly commented on the effects of this judgement:
“The wider impact of this decision on loss of rent cover for landlords and tenants, delay in start-up insurance for construction projects and on reinsurers is yet to be seen. However, it is clear that the ripple effects of the judgment are likely to be significant."
I personally do not believe this decision will change a great deal in the insurance landscape. Most likely, insurers will be cautious of potential pandemics in the future and will likely move to expressly exclude payouts for these in their policies.
Additionally, any losses incurred by the insurers are likely to be passed onto customers through an increase in premiums. The effect for firms will be a need for legal advice in redrafting exclusion policies.