Insurance ruling is a relief
Stephanie Marshall, solicitor, Fieldfisher
Monday, February 1, 2021
What does the Supreme Court’s recent ruling on Covid-19 and ‘business interruption’ insurance mean? Stephanie Marshall, a solicitor at law firm Fieldfisher explains the implications for nurseries
On 15 January, the Supreme Court concluded that certain insurance policies covered losses suffered by businesses during the pandemic.
Many policyholders awaiting this decision were nurseries that were forced to close, save for providing care for a small number of children of key workers, and which continued to incur many of their regular business costs while their income was substantially reduced – leading to substantial losses.
A number of these nurseries had business interruption (BI) insurance policies that they assumed would cover them for the losses suffered.
In some cases, insurers accepted liability under these policies, but others disputed liability – creating uncertainty that the Financial Conduct Authority (FCA), the regulator for insurers, decided to clear up by bringing a test legal case.
The case
Eight insurance companies agreed to act as co-defendants, while the FCA represented the policyholders.
The FCA argued that ‘disease’ and ‘prevention of access’ clauses in a representative sample of 21 policy types did provide cover in the circumstances of Covid-19, and that the pandemic had ultimately caused policyholders’ losses.
What the Supreme Court’s decision means
The Supreme Court’s decision is complex and deals with many issues. While not a panacea, it is broadly good news for nurseries with BI cover.
The FCA’s test case was not intended to encompass all possible disputes policyholders have with their insurers, but rather to resolve some general contractual uncertainties and ‘causation’ issues.
The Supreme Court’s judgment does not determine how much is payable under individual policies. Each policy must be considered against the judgment to work out what it means for that policy.
Policyholders with affected claims should hear from their insurer soon.
The FCA has said it will work with insurers to ensure they rapidly conclude their processes in respect of the specific claims the Supreme Court has said should be paid, providing interim payments where possible. The FCA also stressed that policyholders with questions should approach their broker, other advisers or insurer.
Some nurseries may find that, on analysis of their policy wording, their BI insurance does not cover losses suffered as a consequence of the pandemic.
However, there may be hope for nurseries in these situations too. The Supreme Court’s decision confirms there were policies on the market that nurseries could have obtained that would have covered them for the losses they have sustained.
Nursery owners that were advised to take out BI cover that did not cover the circumstances of the Covid-19 pandemic may therefore be able to claim against their brokers for providing them with negligent advice.
