U.K. Business Interruption Litigation: Will It Impact U.S. Insurers?

U.K. Regulatory Body's Stance on COVID-19-Related Losses

The Financial Conduct Authority (FCA) in the United Kingdom has made it clear that it does not believe COVID-19-related losses trigger most business insurance policies. These policies typically require a direct connection between financial loss and physical damage to the insured property, such as fire, flood, wind, or earthquake damage.

The Test Case and Its Potential Impact on U.S. Insurers

The FCA is currently litigating a test case involving policies of eight insurers that do not require property damage to trigger coverage. This case is relevant to U.S. property/casualty insurers, but opinions vary. Tom Baker, an expert in insurance law and policy at the University of Pennsylvania, sees it as a "one-way ratchet" for U.S. insurers. However, Jason Schupp, founder and managing member of Centers for Better Insurance, disagrees, stating that the outcome of the U.K. litigation is unlikely to be relevant to U.S. business interruption lawsuits.

Pandemic Business Interruption Coverage in the United States

For pandemic business interruption coverage in the United States, the situation remains uncertain. Schupp notes that proposals from Europe or the U.K. for pandemic insurance do not appear compatible with the current U.S. insurance regulatory system. A ruling by the FCA is expected in mid-September, and it will be interesting to see how this impacts both U.K. and U.S. insurers.

In conclusion, while the U.K. litigation may set a precedent, its direct impact on U.S. insurers remains to be seen. It is advisable for businesses to review their insurance policies and consult with legal experts to understand their coverage in the event of a pandemic.