Car dealers who missed out on a Business Interruption payout from insurers when they were forced to close due to lockdown could be now eligible after a High Court judgement.
The FCA carried out a test case to urgently clarify whether businesses should have been able to claim and have found 370,000 policyholders may be affected by the outcome.
In order to establish liability, the FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings should provide cover if the Covid-19 pandemic caused policyholders’ losses.
The test case also clarified that the pandemic, government and public response were a ‘single cause’, which is a key requirement for policyholders to be paid even if they have the business interruption cover.
Batchelors Motor Group was one car dealership that was previously told it didn’t meet the requirements and that the cover would only be available where there has been a specific outbreak of Covid-19 on the premises.
Managing director Tony Denton told Car Dealer: ‘This is good news for policyholders and well done to the FCA.
‘It’s provided much needed clarity.
We have business interruption insurance with QBE that provides cover for infectious, notifiable diseases and pandemics.
‘Our claim was repudiated by our insurers because they said I had to have an outbreak of Covid-19 in the premises or within the specified radius, in my case one mile.
‘Mandated closure was not an allowable claim. We provided evidence of within 1 mile but their response was to wait until the verdict of the test case.
‘Hopefully they’ll now do the right thing and contact policy holders promptly to resolve claims.’
However, the 150-page judgment says that ‘most, but not all, of the disease clauses in the sample provide cover’ and ‘certain denial of access clauses’ but those affected will hear from their insurers in the next seven days.
Each policy will have to be scrutinised to decide whether it meets the requirements.
The FCA interim chief executive Christopher Woolard asked insurers to act on today’s judgement ‘irrespective of possible appeals’.
He said: ‘Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat.
‘Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.’
He added: ‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.
‘They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.’
Most small and medium sized business policies are focussed on property damage or only have basic cover for business interruption, but others cover infectious or notifiable diseases and non-damage denial of access.
In some cases, insurers have already paid out to car dealerships but others have denied liability for these clauses leading to confusion.
Woolard said: ‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.
‘We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.
‘Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.’