Business interruption insurance : the High Court has handed down its judgment in the Financial Conduct Authority’s (FCA) test case

The High Court has delivered its judgment in the Financial Conduct Authority’s (FCA) test case over disputed UK Business Insurance coverage in light of the Covid-19 (coronavirus) pandemic. The Court found in favour of the arguments raised by the FCA on most of the key issues.

The coro­na­vi­rus pan­de­mic has led to wides­pread dis­rup­tion and busi­ness clo­sures resul­ting in sub­stan­tial finan­cial loss. Many cus­to­mers have made claims for these losses under their BI insu­rance poli­cies. Most SME poli­cies only cover pro­per­ty damage and have basic cover for BI as a conse­quence of pro­per­ty damage. Never­the­less, some poli­cies also offer cover for BI ari­sing from infec­tious or noti­fiable diseases (a noti­fiable disease is any disease that is requi­red by law to be repor­ted to govern­ment autho­ri­ties) and non-damage denial of access and public autho­ri­ty clo­sures or res­tric­tions. In some cases, insu­rance com­pa­nies have accep­ted lia­bi­li­ty under these poli­cies, but others have refu­sed to do so, lea­ding to wides­pread concern about this lack of clarity. 

This test case marks an attempt to pro­vide more cla­ri­ty and reduce the amount of liti­ga­tion around this issue. The test case is not inten­ded to encom­pass all pos­sible dis­putes, but to resolve some key contrac­tual uncer­tain­ties. The FCA’s role was to put for­ward poli­cy­hol­ders’ argu­ments to their best advan­tage, and the regu­la­tor selec­ted a repre­sen­ta­tive sample of poli­cy wor­dings writ­ten by eight insu­rers : Arch, Argen­ta, Eccle­sias­ti­cal, His­cox, QBE, MS Amlin, RSA and Zurich. At stake is an esti­ma­ted £9bn to £18bn of claims, and 370,000 poli­cy­hol­ders were iden­ti­fied as hol­ding poli­cies that may be affec­ted by the out­come of the test case. 

“Most, but not all, of the disease clauses in the test-case sample pro­vide cover for losses trig­ge­red by the coro­na­vi­rus pandemic”.

The regu­la­tor explains in a sum­ma­ry of the ruling that “the court found that most, but not all, of the disease clauses in the test-case sample pro­vide cover for losses trig­ge­red by the coro­na­vi­rus pan­de­mic. It also says that cer­tain denial of access clauses in the sample pro­vide cover, but this depends on the detai­led wor­ding of the clause and how the busi­ness was affec­ted by the Govern­ment res­ponse to the pan­de­mic, inclu­ding for example whe­ther the busi­ness was sub­ject to a man­da­to­ry clo­sure order and whe­ther the busi­ness was orde­red to close com­ple­te­ly. The test case has also cla­ri­fied that the Covid-19 pan­de­mic and the Govern­ment and public res­ponse were a single cause of the cove­red loss, which is a key requi­re­ment for claims to be paid even if the poli­cy pro­vides cover”. 

Chris­to­pher Woo­lard, Inter­im Chief Exe­cu­tive of the FCA, com­men­ted : “We are plea­sed that the Court has sub­stan­tial­ly found in favour of the argu­ments we pre­sen­ted on the majo­ri­ty of the key issues. 

Insu­rers will the­re­fore need to take the out­come of this test case into account and, irres­pec­tive of any pos­sible appeals, consi­der the steps they can take to pro­gress claims such as those tar­ge­ted by the judg­ment. Poli­cy­hol­ders with affec­ted claims can expect to hear from their insu­rance com­pa­ny within the next 7 days. 

What is the scope of this judgement ?

It is impor­tant to note that this judg­ment does not say that the eight defen­dant insu­rers are liable across all of the 21 dif­ferent types of poli­cy wor­ding in the repre­sen­ta­tive sample consi­de­red by the judges. The regu­la­tor under­lines that “each poli­cy needs to be consi­de­red against the detai­led judg­ment to deter­mine its impact on that poli­cy”. Besides, this test case is not inten­ded to set the amount payable under indi­vi­dual poli­cies, but will pro­vide much of the basis for doing so.

The regu­la­tor noted that the judg­ment may be appea­led, and any appeal does not pre­clude poli­cy­hol­ders see­king to set­tle their claims with their insu­rer before the out­come of any appeal is known.

A last point is high­ligh­ted by the FCA, which states that is impor­tant that “poli­cy­hol­ders, action groups, insu­rance inter­me­dia­ries and their legal repre­sen­ta­tives are pro­per­ly enga­ged throu­ghout the test case pro­cess. That’s why the regu­la­tor has arran­ged an oppor­tu­ni­ty for them to talk to its legal team indi­vi­dual­ly on Mon­day 21 Sep­tem­ber or Tues­day 22 September”.

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