Update on FCA BI test case

Updated September 2020

The Financial Conduct Authority (FCA) have been seeking guidance through a Test Case in the interpretation of certain policy wordings on Business Interruption and the impact of the coronavirus (COVID-19) pandemic.

This is to determine whether specific, disputed policy wordings called for the payment of Business Interruption claims arising from the pandemic.

The conclusion of the test case

The FCA’s Business Interruption insurance test case has now reached its conclusion and has found in favour of policyholders on the majority of the key issues contested.

This is legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by the court.

There is a possibility for appeal but any appeal does not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.

About the test case

The case considered a representative sample of 21 different policy wordings from eight providers to determine whether cover for the COVID-19 pandemic was included in the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings.

The judgment says that most, but not all, of the disease clauses in the sample provide cover and that certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause.

The legal representatives of the FCA, Herbert Smith Freehills have published a summary on their website.

You can also read the FCA’s announcement here.

The FCA has asked insurers to contact policyholders with affected claims within the next seven days, to let them know how they will be affected by the judgment. We will be working closely with insurers, to ensure that you are kept up-to-date with news and developments on this.

FSB’s statement on the judgement

Responding to the result of the Financial Conduct Authority (FCA)’s business interruption test case, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said:

“This ruling marks a big step forward. It can only be celebrated as a partial victory, however, as it still leaves many with little certainty around whether they will receive pay-outs for policies that have cost them thousands. And for many others with standard interruption cover, this judgement will have no bearing.      

“The FCA was absolutely right to argue that disease or denial of access clauses within interruption policies should trigger pay-outs in the event of coronavirus-linked disruption. We’re hugely grateful for its work in this space.

“We echo the regulator’s call to insurers to reflect on the clarity provided by this judgement and do the right thing by policyholders, many of which are fearing for their futures after six months of serious disruption. They acted responsibly by taking out these policies, and having them honoured is crucial to encouraging more firms to do the right thing where insurance is concerned.”

Next steps for policyholders

A list of the specific policies, listed by insurer, and the judgement for each can be found here.

Policyholders making or settling any claim under their business interruption policy, are not prevented from making a complaint to their insurer if they are dissatisfied with the outcome, and referring their complaint to the Financial Ombudsman Service (FOS).

Policyholders with complaints submitted to FOS are potentially affected by the judgment and should await further information from the Ombudsman.  Further information about BI complaints can be found on the FOS website. 

The FCA has also issued an invitation for as many policyholders and intermediaries and their legal advisers as reasonably possible to speak directly with its legal advisers on 21st and 22nd September.  The FCA will consider meeting requests made to it by 5pm on Thursday 17th  September.  Please email: biinsurancetestcase@fca.org.uk stating only the word ‘Meeting’ in the subject line of the email and stating your availability in the body of the email.  Firms that would like to talk about a particular policy, should email the policy document to the FCA as well as correspondence from their insurer regarding whether their claim is potentially affected by the test case.

Stay up to date

The Financial Conduct Authority (FCA) has a webpage dedicated to sharing as much information as possible about its efforts to obtain a court declaration to resolve the contractual uncertainty around the validity of many business interruption (BI) claims arising during the Coronavirus (Covid-19) pandemic.  You may access the webpage by clicking here.

The FCA is regularly updating this page with information on what it has done and is doing.

If you hold business interruption cover, you may wish to subscribe for e mail updates from the FCA on the FCA’s webpage for the test case

If you are eligible, you may also wish to look at material issued by the Financial Ombudsman Service concerning business interruption insurance cases, which you can access here.