UK FCA business interruption test case overview

Subsequently, on 8 May the FCA issued proposed guidance for handling claims and complaints, on 15 May the FCA invited policyholders to submit details of disputes.

The FCA has imposed certain communication requirements on insures, in particular:

• Insurers must publish relevant details of the test case and keep policyholders updated
• By 15 July insurers were required to write to all policyholders with outstanding claims or complaints with details of the test case and its impacts
• New claimants must receive test case information
• Policyholders must be updated within a week of significant developments

The eight day trial of the FCA's business interruption test case commenced on 20 July 2020, before two judges, Mr Justice Butcher and Lord Justice Flaux.

Submissions were made by the FCA, the intervenors Hospitality Insurance Group Action and Hiscox Action Group, and the eight Defendants who had agreed to be part of the test case:

• Arch Insurance (UK) Ltd
• Argenta Syndicate Management Ltd
• Ecclesiastical Insurance Office Plc
• MS Amlin Underwriting Ltd
• Hiscox Insurance Company Ltd
• QBE UK Ltd
• Royal & Sun Alliance Insurance Plc
• Zurich Insurance Plc

The eight defendants were selected because of the wordings the FCA wished to focus on.

The purpose of the proceedings was to resolve uncertainty surrounding the extent to which (if at all) business interruption policies may respond to loss incurred as a result of the coronavirus pandemic. 

Key issues include:

Government action clauses

• What do terms such as "prevention", "hindrance" and "inability" mean?
• Whose action may trigger cover: central government/police/local/civil/military authority?
• How do vicinity requirements operate in practice?
• The relationship with disease clauses

Disease clauses

• How do radius requirements apply in practice?
• Which premises are "directly subject" to an incident ?
• The effect and operation of causation language: is every single case of disease causative? Need a proximate cause be a ‘but for’ cause?
• The operation of exclusions for "epidemic and disease"
• The burden of proof

Trends clauses

• The extent to which (if at all) they apply to non-damage extensions
• Which "trends or circumstances" may be taken into account?
• Causation

It is important to note that the scope of the UK test case is limited; only non-damage business interruption is under scrutiny, and there are just 17 policy wordings under consideration – although these are thought to impact approximately 370,000 policies.

In addition to the eight insurers participated in the action, two intervenors were given permission to take part: the Hospitality Insurance Group Action (HIGA), which represents the interests of hotels, restaurants, bars, pubs and nightclubs, and the Hiscox Action Group (HAG). The latter has now also commenced arbitration proceedings in relation to coronavirus business interruption losses on behalf of approximately 700 claimants.

The FCA published an announcement to confirm that the court has stated that judgment in the FCA test case will be handed down at 10:30am on Tuesday 15 September 2020.

The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings. It will also provide guidance for the interpretation of similar policy wordings and claims that can be taken into account in other court cases, including in Scotland and Northern Ireland, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.

Given the significance of the case, many commentators anticipate that it will be appealed, whatever the judgment, and the parties have already agreed that any such appeal will be dealt with on an expedited basis, with the possibility of being "leapfrogged" to the Supreme Court.

A full set of the pleadings and hearing transcripts are available on the FCA website