DBRS Morningstar Releases Commentary on UK High Court Regarding Business Interruption Insurance Claims

DBRS Morningstar released a commentary titled “Initial Implication of the UK High Court Business Interruption Insurance Test Case Ruling” that discusses the recent court decision largely favouring policyholders in the United Kingdom and the potential financial impact on insurers.

The key highlights include:

-- The UK High Court largely decided in favour of the position of policyholders regarding business interruption (BI) claims, following a test case brought forward by the Financial Conduct Authority (FCA).

-- The main argument was that business interruption insurance policies could cover losses in the absence of physical damage under certain circumstances, including those caused by the actions of a civil authority (such as a lockdown order).

-- DBRS Morningstar believes that the court decision will have an impact beyond the UK borders given the interconnectedness of the insurance and reinsurance industry in a global scale.

“Depending on the applicable sublimits specified in individual policies, DBRS Morningstar estimates that the total cost of BI claims could be between GBP 4 billion and GBP 10 billion, based on the assumption provided by the FCA that most sublimits are in the GBP 10,000 to GBP 25,000 range per policy. This level of losses could be lower depending on the specifics of the ruling,” says Marcos Alvarez, Senior Vice President and Head of Insurance. “In DBRS Morningstar’s view, the implication of the High Court decision could extend beyond the British insurance industry given the level of integration between insurers and reinsurers on a global scale, the relevance of the London Market, and the common-law precedent that could be used in other jurisdictions.”

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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