It has been very interesting watching the FCA's business interruption litigation playing out in the High Court this week. Whilst arguments have been made across every aspect of the various policy wordings that are under scrutiny, the key battleground has been causation; did the closure of policyholders' premises cause their losses, or would those losses have happened anyway?
The insurance market have strenuously argued that we must compartmentalise the issues, and split premises closure from the COVID-induced lockdown. As such, when assessing loss we should ask the question 'what losses would you have suffered if your premises had remained available during COVID?'. The FCA on the other hand have said that this is not the right approach and that the closure of premises and COVID should be viewed as one and the same thing; as such, one should instead ask the question 'what would your trading position have looked like if your premises had remained available and COVID had not happened'.
These two questions produce fundamentally different results, with the insurers' approach ultimately resulting in a lower claimable loss, the argument being that the effects of the global lockdown would have resulted in no discernable trade even if the policyholder had somehow managed to remain open. The FCA's approach is necessarily more forgiving.
It will be very interesting to see which way the Court falls; suffice to say that, if the judges ultimately favour the FCA approach, they will be compelling the business interruption market to pay out on claims that were never within their contemplation or risk modelling, and that may well be an existential issue for some of the insurers involved
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