Following the Financial Conduct Authority’s test case on business interruption insurance at the High Court, Horse & Hound has spoken to the British Equestrian Trade Association and equestrian insurance specialists SEIB to find out what the ruling means for equestrian businesses...
A TEST case looking at whether businesses impacted by Covid-19 can claim on their insurance could spell good news for some equestrian companies, but not for others.
Business interruption insurance covers a company in the event that they cannot operate, usually relating to physical damage – for example, temporarily renting another yard in the event of a flood.
As the coronavirus pandemic forced a number of businesses, including riding schools, to close their doors, questions were raised as to whether pandemic losses would be covered by business interruption insurance.
The Financial Conduct Authority (FCA) arranged a test case at the High Court involving eight insurers to help bring clarity.
“There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims,” explained the FCA statement, adding there are “genuine doubts” over the appropriate interpretation of wording in some cases, which have led to uncertainty and disputes.
“The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and causation issues to provide clarity for policyholders and insurers.”
The FCA argued for policyholders that the “disease” and/or “denial of access” clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
It adds that most, but not all, of the “disease” clauses in the sample provide cover, and that certain “denial of access” clauses in the sample provide cover. However this also depends on other factors, including the detailed wording of the clause and how the business was affected by the Government response to the pandemic.
As a range of equestrian businesses were unable to operate during lockdown, clarity will help those companies who hold business interruption insurance to know where they stand.
The judgement on 15 September ruled in favour of policyholders on the majority of the main issues up for dispute – but this is not the end of the road.
FCA interim chief executive Christopher Woolard said the result was a “significant step” in resolving the uncertainty faced by policyholders and removed “a large number of those roadblocks to successful claims as well as clarifying those that may not be successful”.
However, the case is complex and further action and appeals are ongoing.
British Equestrian Trade Association executive director Claire Williams told H&H the outcome may well be of use for those companies who had this insurance in place.
“It would appear that there are still some details to be clarified and so it may be too early to know how much and indeed whether companies will be able to benefit,” she added.
The British Horse Society has been seeking clarification from SEIB on what it could mean for policyholders in the equine world.
“The answer to that is different for every policyholder whose claims are likely to be affected by the test case,” said an SEIB spokesman.
“However, all policyholders who have made claims against their policies and may be impacted should have been contacted by their insurers.
“In some instances, the judgement may have very little impact as certain insurers may have confirmed coverage and/or supported policyholders on a commercial basis prior to the commencement of the test case.
“For those policyholders that may be impacted, while this decision brought some clarity to the issues being considered, the judgement is not final. Several parties, including the FCA, have made applications to appeal. As such, other insurers are taking the position that no indemnity payments or final decisions on coverage will take place until all rights of appeal have been concluded.
“It is possible that the SEIB policies may respond. However, there are a wide variety of possible outcomes and if riding centres want clarity over their policy coverage they should speak to their broker.”
H&H 22 October 2020
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