ILC ARTICLE

High Court finds in favour of FCA in business interruption insurance test case

16th September 2020

The High Court has found in favour of the Financial Conduct Authority (FCA) during its business interruption insurance test case.

The FCA brought the test case in a bid to resolve the ‘lack of clarity and uncertainty’ that existed for policyholders making business interruption claims. It has the potential to affect 370,000 mostly small businesses.

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. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders.’

Huw Evans, ABI director-general, said: ‘This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.’

The proceedings were brought by the FCA, the regulator of the defendant insurers, as a test case. The purpose was to determine issues of principle on policy coverage and causation under sample insurance wordings.

Eight insurer defendants agreed to participate in the test case. The FCA represented the interests of the policyholders, many of which were small to medium sized enterprises. There were 21 sample wordings considered, but the FCA estimates that, in addition to these particular wordings, some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.

The parties agreed a sample of standard form business interruption policies for consideration in the case. A total of 21 lead policies were considered. The relevant provisions in the policies fell into three categories:

• Disease wordings: provisions which provide cover for business interruption in consequence of or following or arising from the occurrence of a notifiable disease within a specified radius of the insured premises.
• Prevention of access / public authority wordings: provisions which provide cover where there has been a prevention or hindrance of access to or use of the premises as a consequence of government or other authority action or restrictions.
• Hybrid wordings: provisions which are engaged by restrictions imposed on the premises in relation to a notifiable disease.

The FCA and Defendant insurers are considering the judgment and what it might mean in respect of any appeal.