Cathryn Selby, Head of the Dispute Resolution Team at law firm Nelsons, discusses the court’s findings and what they mean for businesses.
The final judgement in the landmark business interruption test case pitting the Financial Conduct Authority (FCA) against insurers was delivered in the Supreme Court.
The ruling, which will be used as guidance for any disputed business interruption insurance cases, could impact 700 types of policies, 60 insurers and 370,000 small businesses and policyholders, according to the Supreme Court.
While the judgement is largely in favour of insurance policyholders, it is complex. Therefore, as always with insurance disputes, it is crucial to look at the precise terms of any given policy to determine whether and when it would be triggered, and what losses can be claimed.
As such – and because different conclusions were reached in respect of each policy wordings – business owners should read the judgement carefully or seek legal advice to find out what the findings mean for their policy.
That being said, the Supreme Court’s ruling is a great victory and undoubtedly positive for many of the struggling small and medium-sized firms that held business interruption insurance and were forced to close during the first lockdown. Taken as a whole, the judgement means that many firms will be able to seek compensation for the disruption caused to their business by the pandemic.
In any event, the outcome of the test case is a significant step in resolving the uncertainty policyholders are facing, and the compensation could be a matter of life and death for thousands of companies who were denied a financial lifeline as they recover from the devastating impact of the pandemic.
If you do believe you have business interruption cover, it is important that the senior management team starts to keep careful documentary evidence of the way in which the business has been interrupted by the coronavirus and the amount of the losses incurred.
What is the Orient Express case?
The Supreme Court referenced the Orient Express Hotels v Assicuraziono Generali  case, where a hotel in New Orleans suffered physical damage as a result of the effects of Hurricane Katrina. That case represented a somewhat pyrrhic victory for the hotel owners.
This is because the court upheld the owners’ claim that the policy should respond but then went onto hold that trading losses had to be based on the difference between a damaged hotel operating in post-hurricane New Orleans and a damaged hotel operating in the same situation – rather than in an undamaged New Orleans.
The insurance company paid the hotel’s claims in relation to prevention of access and loss of attraction. However, it did not have to pay for the business interruption claim due to the fact that even if the damage to the premises had not happened, the hotel would still have suffered the same trading losses as the surrounding area was closed off.
The FCA asked the High Court to consider this case, which could have had a potentially significant impact on the value of any claim. However, the Supreme Court ruled that this case was ‘wrongly decided and should be overruled’.