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Business Interruption Insurance – FCA Test Case update

The FCA’s High Court test case, aimed at resolving the issue of whether business interruption losses caused by the COVID-19 pandemic are covered under certain insurance policies continues at an aggressively fast pace with a second Case Management Conference having taken place on 26 June.

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The FCA’s High Court test case, aimed at resolving the issue of whether business interruption losses caused by the COVID-19 pandemic are covered under certain insurance policies continues at an aggressively fast pace with a second Case Management Conference having taken place on 26 June.

Although the FCA and all eight defendant insurers (1) share a common and agreed purpose of addressing the uncertainty that has arisen, all parties are adopting an adversarial approach to the litigation and the regulator has said it will fight tooth and nail for the interests of policy holders around the country.

Business owners with BII policies should pay close attention to the case even if their insurers are not directly involved, as the policy wordings in dispute are only a representative sample. The Court’s ruling is expected to be of much wider application, as it will deliver persuasive guidance for the interpretation of similar policy wordings and claims. The FCA has told insurers that they should ultimately apply the judgment in (re)-assessing all outstanding or rejected claims which may be affected.

Importantly, the test case focusses only on policies that do not require damage to the insured’s property. The FCA is seeking (amongst other rulings) Court findings that:

  • The Government’s response (in the form of advice, instructions and legislation) was a single body of public authority intervention which prevented access to business premises and interfered with business activities.
  • None of the policy wordings under scrutiny contain express or implied exclusion for pandemics.
  • Clauses which provide cover only where there was a danger, emergency, threat, disease, public authority action or other trigger within a certain distance or vicinity of the premises will in most cases be triggered by early/mid-March 2020.

The trial is set down for an 8-day hearing commencing on 20 July.

In addition to hearing submissions from the FCA and each insurer, the Court will hear from a number of insureds who (following a successful application last week) were permitted to intervene in the test case. The Hiscox Action Group and Hospitality Insurance Action Group (2) will be allowed to make written submissions and brief oral submissions on issues relating to their policy wordings.

Given the tight timetable, there has been significant debate about whether expert evidence (relating to the “prevalence” of Covid-19 in the UK) can be dealt with at the trial in July. The FCA wishes to rely on modelling trusted by the Government and Public Health England in determining the rate of infection. This, they say, is the best available proof about the prevalence of Covid-19. The insurers argue that this evidence needs to be tested and say that they have thus far been unable to identify any suitable expert witness. The Court may therefore deal with this issue at a second trial in September or October.

We will continue to provide regular updates as the matter unfolds.

If you would like specific advice about how the test case might affect arrangements with your insurer, please contact Stephen Rosen or Jean-Martin Louw.

(1) Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office Plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Limited, Royal & Sun Alliance Insurance Plc and Zurich Insurance Plc
(2) Consisting of QBE policy holders.

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Stephen Rosen

Partner - Head of Banking & Financial Disputes

stephen.rosen@collyerbristow.com