On September 15, the U.K. High Court issued a ruling concerning the UK Financial Conduct Authority’s (FCA) test case on pandemic-related business interruption (BI) claims against 21 representative policies issued by 8 insurers. While they may provide clarity for insurers and policyholders in the UK, the findings of this ruling are not relevant to the current BI litigation landscape in the U.S.
- FCA had already taken the position that COVID-19 does not cause property damage. Policies examined in this test case excluded those with language requiring direct physical damage to property.
- FCA's test case examines BI policies within the "miscellaneous financial loss insurance" class of insurance, which is specific to Europe's regulatory scene and excludes physical damage prerequisite. According to founder and managing member of Centers for Better Insurance Jason Schupp, "In Europe, [FCA] authorization to provide miscellaneous financial loss insurance allows an insurance company to write business interruption insurance that does not require evidence of property damage [to pay a claim]."
- Contrary to the U.K., the requirement of a direct physical damage to property in the U.S. is fundamental across most standard BI policies. "The outcome of the U.K. litigation is unlikely to be relevant to the dozens—or perhaps hundreds—of business interruption lawsuits making their way through U.S. courts, where the property damage question is front and center," said Schupp.
To date, there has been a growing list of court decisions in state courts across the U.S. that prove standard BI policies don't cover COVID-19 shutdowns. Direct physical loss or damage must occur for a BI claim to be triggered, and government orders do not constitute direct physical loss or damage to property.
For more information and resources, go to fairinsure.org.