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Overview
The COVID-19 pandemic has led to closures and widespread disruption to business – resulting in substantial financial loss. Many policyholders have made claims for these losses under their Business Interruption (BI) insurance policies. However, there is concern regarding the lack of clarity and certainty as to how these policies will be interpreted. This is the backdrop to the Financial Conduct Authority’s (FCA) test case.
The FCA’s case
Background
The FCA started the claim in the High Court on 9 June 2020. There are eight Defendants: (i) Arch Insurance (UK) Ltd; (ii) Argenta Syndicate Management Ltd; (iii) Ecclesiastical Insurance Office Plc; (iv) Hiscox Insurance Company Ltd; (v) MS Amlin Underwriting Ltd; (vi) QBE UK Ltd; (vii) Royal & Sun Alliance Insurance Plc; and (viii) Zurich Insurance Plc.
The FCA has stated that it is aware of “many customers who believe they have valid claims having these rejected by their insurer”.[1] The FCA’s view is that the complexity around BI policies has the potential to create ongoing uncertainty for both customers and firms. At [4] of the Claim Form the FCA says that this uncertainty is impacting, in particular (though not solely), SMEs. Further, the variation in the types of cover provided and wordings used in different policies means that it is difficult for a policyholder to know if they can make a valid claim.
To alleviate this uncertainty, the FCA is seeking declarations on a number of points of contractual construction and principle relating to coverage and causation.[2] At [6] of the Claim Form the FCA’s position is as follows:
“The Claimant contends that, subject to proof of loss and individual policy points such as sub-limits, the wordings written by the Defendants which have been selected to be tested in this claim do respond to the events of COVID-19 and the Governmental action responding to it in the first half of 2020.”
To this end, a representative sample of policy wordings has been compiled by the FCA.[3] The FCA have also provided a document which summarises the questions for determination – this document is explicitly signposted as being superseded by the statements of case; however it does provide a helpful summary of the determination.[4]
Questions for determination
The questions for determination which are described the FCA as ‘central’ are as follows:
The FCA have then asked additional questions which cover: (i) the effect on business required in order for it to be interrupted or interfered. (ii) Disease cover, whether current definitions include COVID-19 and what is required for a disease to be within the ‘vicinity’ of the insured premises. There are further sub-questions on this issue of what is required in terms of proof and the meaning of specific terms in the context of the policies. (iii) Questions on what is required for denial or prevention of access cover. (iv) There are additional questions in respect of causation, i.e. the necessary causal link that must be established on a particular policy wording. (v) Finally the FCA have referred questions on potential exclusions which may arise on the wording of certain policies.
Arguments for the FCA
The FCA’s test case can be summarised as follows:
Next Steps
On 16 June the first Case Management Conference (CMC) took place. At the CMC on 16 June, Mr Justice Butcher made an order relating to how the test case would proceed, including that:
Comments
The FCA has set out its expectation that, following final resolution of the test case (including any appeals), insurers should apply the judgment in (re-)assessing all outstanding or rejected claims and complaints which may be affected by the test case.[10] The FCA’s statements of case confirm that it is taking a clear position on the questions for determination from the court, rather than seeking a declaration on the matters in dispute more neutrally. If the FCA is successful, the likely exposure to relevant insurers will be considerable.
Insurers and policyholders alike will have to wait a little while longer to understand the full extent of the arguments being raised by the parties. However, the CMC on 16 June has already given a sense of some of the major points of contention arising between the parties.
The ambitious timetable set and the possibility of an appeal in this matter, mean that the answers to the questions raised by the FCA may take longer than hoped.
[1] FCA, ‘Business interruption insurance’, <https://www.fca.org.uk/firms/business-interruption-insurance#latest-updates> accessed 20 June 2020.
[2] The claim is brought pursuant to the Financial Markets Test Case Scheme. Claim form available at: <https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-claim-form.pdf> accessed 20 June 2020 and FCA Particulars of Claim: <https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-particulars-of-claim.pdf> accessed 20 June 2020.
[3] Representative sample of policy wordings (9 June 2020), <https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-tracked-representative-sample-of-policy-wordings.pdf> accessed 20 June 2020.
[4] Questions for Determination (9 June 2020) <https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-questions-for-determination-9-june.pdf> accessed 20 June 2020.
[5] [3] of the Particulars of Claim.
[6] [4.1] of the Particulars of Claim.
[7] [4.2] and [33] of the Particulars of Claim.
[8] [4.4] of the Particulars of Claim.
[9] [4.5] of the Particulars of Claim.
[10] FCA, ‘Business interruption insurance’, <https://www.fca.org.uk/firms/business-interruption-insurance#latest-updates> accessed 20 June 2020.
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