Coronavirus: Nurseries thrown a lifeline in ruling on business interruption insurance

Judges have ruled that the disease clauses in some insurance policies should have meant they are covered.

Most nurseries forced to close as a result of the pandemic were among thousands of small businesses that found they were unable to claim on their insurance, despite having business interruption cover included in their policies.

Many policyholders whose businesses were affected by the Covid-19 pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.

The test case was brought by the Financial Conduct Authority (FCA) in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. 

They had identified 370,000 policyholders as holding policies that may be affected by the outcome of the test case.   

The High Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues. 

The FCA had asked the court to decide on the correct interpretation of a selection of policies, with judges in the end looking at 21 issued by eight separate insurers including Ecclesiastical, Hiscox, RSA and Zurich.

Insurers are able to appeal against the decision. The ruling has not been broken down by sector, but policyholders should hear from their insurer within the next seven days.

The FCA said that although the judgment would bring welcome news for many policyholders, it did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court. It said, 'Each policy needs to be considered against the detailed judgment to work out what it means for that policy.'

Patricia Hanson, director of business development at the National Day Nurseries Association, said, ‘Since the Covid-19 pandemic started affecting childcare businesses we have received a lot of enquiries from concerned members. The court's ruling on the FCA's test case provides some hope for the sector but individual policyholders will still have to wait for answers on their own individual wording.

‘This has been an issue we have taken up with insurers, the Government and the FCA on behalf of our members but we know there are still concerns for what happens if there are future lockdowns. The Government need to ensure that childcare businesses, as an essential part of the economy and our children's futures, are protected.’

Nursery World reported in May that international law firm Fieldfisher was considering taking on a class action on behalf of more than 90 day nurseries against the insurer Ecclesiastical and/or broker Pound Gates.

The nurseries’ claims for business interruption as a result of the coronavirus lockdown had been rejected.

A spokesperson for Fieldfisher said, ‘We are unable to comment substantively on the decision at this stage – we are evaluating the implications of the judgment and will issue an update in due course.’

In a statement on its website Ecclesiastical said, 'The High Court Judgment published on 15 September 2020 stated that losses arising from the Covid-19 pandemic are not covered by Ecclesiastical’s Business Interruption policies and therefore we are not required to pay claims on those policies.'

Christopher Woolard, interim chief executive of the FCA, said, 'We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties. 

‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. 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.

‘If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.’

Huw Evans, director general of the Association of British Insurers, said, 'Insurers have supported this fast-track court process led by the FCA to help bring clarity for customers and we welcome the speed with which the court has delivered a ruling.

'The judgment divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts.

'Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events.'

• A summary of the judgment is available here