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Law360, London (September 28, 2020, 3:09 PM BST) -- The High Court case over whether insurers are responsible for paying out on claims made by businesses forced to close during the coronavirus lockdown has revealed the unnecessary complexity of standard commercial insurance policies, Mactavish warned on Monday.
The claims resolution company said the business interruption policies considered in the test case brought by the Financial Conduct Authority were so complicated that even the "finest legal minds in the country can't disentangle exactly what they mean in practice."
The City regulator brought the test case after insurers refused to pay out on claims to an estimated 370,000 businesses forced to close during the nationwide lockdown, which began in March.
Mactavish said in a report, called Manufacturing Confusion, that the legal case underlined a growing need for policy wordings to be made more simple.
"Clients without a legal or technical background now often have no chance of deciphering their own policies," Bruce Hepburn, chief executive of Mactavish, said. "Faced with such complexity, even the most sophisticated buyers are out of their depth in a specialist legal area."
Hepburn said that clients often rely on their brokers. But, even then, few brokers understood how cover was affected in practice by a range of extensions, exclusions, endorsements, definitions, conditions and side letters.
"This is a legal disgrace; exposing non-legal specialists to such a morass is unethical and abusive," Hepburn added.
The court case looked at 21 so-called non-damage extensions to business interruption policies, many of which offer cover if a premises was forced to close because of an outbreak of infectious disease. Other extensions tested offered cover if a public authority blocks or denies access to a premises.
But insurers said that, even if there had not been a lockdown, the insured business would have still faced financial losses as a result of people staying at home during the pandemic — a hypothetical "counterfactual" scenario that is often used as a basis for causation in contract law.
The FCA said in its High Court case that the arguments of insurers were unintelligible to the average, "unsophisticated" buyer of insurance.
--Editing by Ed Harris.
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