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Jan 15, 2021

Supreme Court judgement handed down on business interruption appeal

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The UK's Supreme Court judgement handed down this morning is seen as enabling thousands of small UK businesses (SMEs) to succesfully claim for business interruption losses caused by the consequences of Covid.

Parties involved:

The Appeal involved the FCA, the Hiscox Action Group and six UK insurers Arch, Argenta, Hiscox, MS Amlin, QBE and RSA.

What was being appealed

In response to insurers' refusal to pay non physical damage business interruption claims arising from the UK-wide lockdown, the FCA brought a fast-track hearing against eight UK insurers and a representative sample of their 21 wordings, potentially affecting nearly 370,000 SMEs.

The outcome of the High Court judgement in September was broadly favourable to insureds but both sides decided to launch an appeal in order to gain further certainty.

In brief, the main issues that needed clarity were whether extensions of cover to the policy under diseases clauses were indeed triggered by the UK Government's national lockdown measures or not; furthermore, could others claim under their denial of access extensions.

Supreme Court judgement

The Supreme Court hearing lasted for four days.

The FCA's press release on the issues and the outcome of the Supreme Court's judgement is available here.

The 112 page judgement can be downloaded here as a pdf.

Each policy needs to be considered against the detailed judgment to work out what it means for that policy. As Hiscox says in its statement today, "Fewer than one third of Hiscox's 34,000 UK Business Interruption policies may respond as a result."

Hiscox Group reaction

Hiscox this morning issued a Press Release available here on its website following the release of the UK Supreme Court judgement. Contained in this is an increase in its estimate for Covid business interruption losses of US$48m net: "As a result of the Judgment as well as further government restrictions announced during 2020, the total Hiscox Group 2020 COVID-19 estimate for business interruption increased by $48 million net of reinsurance."

Hiscox also provided an estimate for the impact of this year's government restrictions: "Following the Judgment, the Group estimates exposure to restrictions already announced in 2021 at less than $20 million if restrictions extend to the end of March."

As covered in previous articles, the group's residual exposure is being run-off at a steady rate and will be all concluded by the end of this June: "Hiscox's exposure to potential business interruption claims arising from further UK government restrictions to contain the spread of COVID-19 has been running off at approximately 8% per month from June 2020, with residual exposure to be fully run off by the end of June 2021."

Hampden comment

It is too early as yet to digest in full the judgement which has upheld the High Court ruling. As John Neal observed last September, Lloyd's is "genuinely underweight" on UK SME business as it has a smaller than average market share of this business. At the same time, John Neal added that the challenge from the court cases sits "with the domestic insurers in the U.K."

As further insights become available we will publish them. We will also place an article in the March Newsletter.