Updated 15 September 2020
The FCA test case – High Court judgment
You may have seen in the press that the Financial Conduct Authority (FCA) has brought its own legal test case to resolve contractual uncertainty relating to the validity of many business interruption claims resulting from Covid-19.
The proceedings were brought by the FCA, the regulator of the defendant insurers, to determine issues of principle on policy coverage and causation under sample insurance wordings.
On behalf of all of our Ecclesiastical nursery clients we engaged with the FCA, setting out Ecclesiastical’s position on policy cover (a reminder of this can be found at the bottom of this statement) and our main points of disagreement with Ecclesiastical’s stance on behalf of our clients. We provided the FCA with the relevant policy wording for inclusion in the review. The High Court reviewed this policy wording, along with a number of other Ecclesiastical policy wordings and sample wordings from other insurers.
The judgment handed down by the High Court (on 15th September 2020) has ruled that business interruption losses arising from the pandemic are not covered under the sample Ecclesiastical policies (which includes your nursery insurance policy) and therefore Ecclesiastical are not required to pay claims on those policies.
We recognise that this will be hugely disappointing news to you as your business continues to deal with the effects of the pandemic. There is, of course, the possibility that the FCA will seek to appeal against the judgment as it relates to Ecclesiastical and any appeals will be heard on an expedited basis to avoid any further delays.
The parties to the test case agreed a sample of standard form business interruption policies for consideration in the case. A total of 21 lead policies were considered. The relevant provisions in the policies fell into three categories:
- Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
- Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
- Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.
The court substantially found in favour of the FCA arguments on key issues and provisions relating to category 1 and 3, but, not so in the case of category 2. The Ecclesiastical sample wordings are category 2 wordings.
- Ecclesiastical’s statement on the High Court judgment can be found here.
- The FCA’s legal team at Herbert Smith Freehills have published a summary of the judgment here.
- The full judgment from the test case (over 150 pages) can be viewed on the FCA website here.
What happens next?
- Customers who have previously presented claims or complaints to Ecclesiastical will be contacted within the next 7-10 days to explain the outcome of the test case.
- If you have already referred your complaint to the Financial Ombudsman Service you should await further information from the Ombudsman. The Ombudsman has published information on business interruption insurance complaints on its website here.
We understand that your insurer’s position on policy cover for Covid-19 is not welcome news for you but we hope that this statement has helped to provide clarity on the position. We have prepared a set of Frequently Asked Questions which you can access here. It includes details of the support available to you through your insurance cover, including access to legal helplines and counselling support.
Should there be any progress with any appeals against the judgment or any other material changes we will keep you informed via this website. If you do have any questions you feel we have not covered in this statement please contact our Nursery Support Team on 01473 346118 or by email at email@example.com.
Covid-19 statement – a reminder of the insurance cover position
We understand this is an uncertain time for nursery operators and there is widespread concern about the impact Covid-19 is having on businesses. In common with most of the UK insurance market, the Pound Gates policy provided by Ecclesiastical specifies a list of illnesses and is designed and priced to cover standard risks, not those that are unknown or unquantifiable, such as the effects of Covid-19. We are aware that some insurance providers in the sector are offering some level of cover but the position under our policy remains unchanged.
For the sake of clarity, the cover position is:
Business Interruption – there is no cover under the specified diseases extension as Covid-19 is not one of the specified diseases covered by Ecclesiastical (refer to page 48 of the policy wording). The Business interruption cover for non-damage prevention of access also excludes prevention of access caused by infectious disease (refer to page 45 of the policy wording). This means there is no cover for loss of income where nurseries are forced to close by the government or local authority.
Liability – subject to the terms and conditions of the policy, Employers’ and Public Liability policies provide an indemnity to the policyholder if the policyholder is held legally liable for accidental bodily injury or illness arising in connection with the policyholder’s business.
If you do have any questions you feel we have not covered in this statement please contact our Nursery Support Team on 01473 346118 or by email at firstname.lastname@example.org.