In the United Kingdom, the Financial Conduct Authority (“FCA”) representing policyholders, brought a test case under the United Kingdom High Court’s Financial Markets Test Case Scheme. The aim of this test case was to resolve contractual uncertainty around the validity of business interruption (“BI”) insurance claims related to the COVID-19 pandemic, in order to ensure that policyholders are treated fairly by insurers and insurance intermediaries.
A number of relevant policy wordings were examined to determine causality and burden of proof.
Was the lockdown as a result of the pandemic?
The judgment sets out the history of the disease to date, and the government response to the developments, proving that the lockdown was a direct result of the pandemic. On the 11 March 2020, the WHO declared COVID-19 to be a pandemic.
On 17th March, the UK government issued a statement allowing businesses who have a policy that covers pandemics and government-ordered closure, to make an insurance claim against their policy. The Coronavirus Business Interruption Loan Scheme was created for businesses without insurance. On the 20th March, the Prime Minister ordered all cafes, pubs, restaurants, theatres, gyms and leisure centres to close.
On 21 March 2020, the ‘21 March Regulations’ were made, requesting official closure of premises and businesses. On the 22nd March, all non-essential shops ordered to close. Following this, the ‘26 March Regulations’ revoked most of the 21 March Regulations and introduced a more expansive regime for business closures, detailing business subject to restrictions or closure. In light of these regulations, the parties adopted a categorization of businesses into which policyholders fall.
The defendants dispute whether, as a matter of law and fact and in light of the BI policies, the necessary causal link to any loss suffered by policyholders that is the subject of claims under the policies, can be established.
The High Court applied the ordinary principles of contractual construction and reached a decision that the issues of causation raised by the parties are answered by the correct construction of the wordings in the policies.
The Court held, across all policies and wordings, that in assessing how a counterfactual ‘but for’ test or ‘business trends’ clause should be applied, the point of departure is always the insured peril itself. In answering the counterfactual question as to what would have been the effect but for the occurrence of the insured peril, the Court found one needs to strip out all the interconnected elements including the national outbreak of COVID-19. One then compares the actual performance of the business with what the business would have achieved in the absence of the COVID-19 outbreak and its effects.
The court held that the proximate cause of the BI is the disease, of which the individual outbreaks form indivisible parts, meaning that the disease in the UK is one indivisible cause affecting businesses. Thus, the real cause of the BI was held to be the actual or threatened nationwide pandemic and cases, and not individual instances of cases.
It was held that despite the many different cases acting as causes, they are all insured. Upon the correct construction of the policy wordings and on principle, it is concluded that cover is available despite independent concurrent cases.
Burden of proof
The Court held that it is sufficient to discharge the burden of proof on the assumption that the matters pleaded represent the best evidence available, despite the fact that no direct evidence was heard.
The Court further held that the burden of proof remains with the policyholders/ insured. The insurer can challenge the evidence put forward by the insured in order to dispute that the burden has been discharged. If it does not do so, then it is more likely that the Court will find that the burden has been discharged. Absolute precision regarding cases is not required by the insurers for the successful claims.
The Court held that there is no need for the submission of COVID-19 test results, but the parties confirmed that the insured must prove the presence of at least one case within the relevant policy area. If the insured does not have access to this information, a averaging or undercounting methodology could be relied on by the insured, if it produced reliable evidence.
However, in the absence of either options, the insured is not excluded from receiving payout from the Insurer because the insured does not have to prove that the localised cases of COVID-19 were the cause of their BI, or that the lockdown was caused by localised cases.
Outcome of the case
The result of this case is that the insurers should honour the BI claims that were made, due to a causal link being proven. This finding is legally binding on the eight insurer defendants to the test case in respect of the policies considered. Although this ruling is final, there is likely to be an appeal because not all insurers policies were considered, and the Court heard no evidence and made no factual determinations. This judgment has persuasive guidance for the interpretation of similar policy wordings, as it directly impacts the resolution of other claims underwritten by insurers who were not involved in the test case.