Policyholders will be rejoicing following the handing down of the decision of the Supreme Court in the FCA’s test case this morning. Whilst the Lord Justices did not agreed with some aspects of the original judgment of the High Court, the fact is that the Supreme Court’s decision opens the door for policyholders to recover more from insurers than would have been the case under the original judgment.
Whilst the FCA will be relieved that their decision to seek the court’s guidance has been vindicated, insurers now face the difficult task of properly assessing the impact of the judgment, having regard to their specific policy wordings, and settling cases as quickly as possible.
Whilst the Supreme Court’s decision addressed 6 separate issues in detail (the judgment runs to 115 pages), the practical impact of the decision is that:
- Policyholders only need to show that there was an occurrence of COVID-19 within the stipulated vicinity/radius of their premises in order for the cover to be triggered under the policy (which, outside of the Scilly Isles and other similarly remote locations, should be easy to do).
- Insurers will not, absent very clear wordings in their policy, be permitted to reduce the amount of money paid to policyholders by applying the Trends Clause unless the relevant trend (such as a previous reduction in turnover) is completely unconnected with the pandemic.
- Any reduction in turnover caused by the impact of the pandemic prior to the cover under the policy being triggered, will also be recoverable.
Whilst there may be some insurers who conclude that they have grounds to decline claims or reduce payments based on their specific policy wordings, the decision makes it clear the scope for insurers to take such steps is likely to be limited.
Following the High Court’s decision in September 2020, the FCA made it clear to insurers that they expected steps to be taken to assess the claims already made so that they were ready to quickly settle claims once the Supreme Court had ruled. The Enterprise Act 2016 inserted a new Section 13A in to the Insurance Act 2015 entitling policyholders to claim damages if insurers breach their duty to pay claims within a ‘reasonable time’. Given the numbers of claims that insurers will be having to settle, it is difficult to gauge what a reasonable period of time looks like, but those insurers who have not taken sufficient steps to undertake that assessment may well find themselves under pressure to pay damages
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If you would like to know more about this matter, please speak to your contacts at Plexus Law:
Andrew Corcombe, Partner
T: 020 7220 5940 | M: 07779 437 522 | E: email@example.com
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