Companies in the lurch - insurance companies not recognising judgment

James Turner

A JUDGMENT handed down by the Supreme Court which allowed the appeal brought by the Financial Conduct Authority on behalf of policyholders of Business Interruption Insurance (BII) policies bodes well for a broad range of businesses and sectors across Northern Ireland

A successful insurance claim, specifically relating to the industry's most adversely impacted including hospitality and leisure, professional services, retail, construction and manufacturing, may well allow them to pay rents or other essential expenses while closed, leaving them with a business to come back to once restrictions are lifted.

But in the last few weeks we have been briefed by multiple businesses across a range of sectors who have eligible cover, but are seeking legal recourse as they are still being refused by insurance companies.

When businesses had to close during the first lockdown last spring, many who had BII cover in their insurance policies, attempted to claim off those policies.

This type of insurance is commonly used where a business suffers a loss due to the interruption caused by a fire, flood, or other similar natural disaster including infectious or notifiable diseases. However major insurers resisted such claims, citing that the unprecedented lockdown situation and subsequent loss of earnings was not covered by their respective policies.

The FCA, the UK consumer protection body and regulator of insurance companies, took a claim on behalf of policy holders against insurers, with eight major insurers agreeing to take part in the test case. Twenty-one sample policy wordings were considered but the FCA estimates about 700 types of policies held by over 370 policy holders and 60 different insurers could be affected.

In the test case of the FCA v Arch and Others, the Supreme Court allowed the appeal brought by the FCA on behalf of policyholders of business interruption insurance. The FCA sought clarity on the extent of the coverage provided by BII, namely whether a policyholder could rely on this kind of policy for losses caused by the Covid-19 pandemic.

The Supreme Court ruling involved the consideration of complex legal matters but in summary now means that small and medium sized enterprises may be eligible to receive payments if they hold a relevant BII policy.

This ruling now makes it difficult for insurers to deny cover or reduce an indemnity on the basis that the loss would have resulted in any event from ‘non-damage perils' caused by the Covid-19 pandemic.

While the case was brought before the English courts, ultimately ending up in the Supreme Court (whose judgments apply UK-wide), we can expect to see the Financial Ombudsman service and the Northern Ireland courts follow the guidance provided by this ruling in future cases. Encouragingly, the High Court in Dublin has also recently forced an insurer to pay out on valid claims for BII cover for pubs.

In Northern Ireland we are fortunate to have a bespoke Commercial Hub court which is dealing with these types of claims expeditiously despite the restrictions caused by Covid-19 and the lockdown. In my experience of recent multi-party litigation conducted in the High Court in Northern Ireland, we are in a unique position to deal with these types of disputes and it is clear that the Court is “open for business”.

The emerging picture is that there are certain insurance companies who are not prepared to accept claims under any circumstances despite the UK and Ireland judgments.

It is recommended to all business owners to consult their own policy if they feel that they may have relevant cover for business interruption, and if insurers will not abide by the court judgments, insurance companies must expect legal action as the obvious next step for any affected business.

:: James Turner is director of commercial litigation and dispute resolution at O'Reilly Stewart Solicitors

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