Business Interruption Claims and the FCA Test Case

The coronavirus (Covid-19) pandemic and the Government controls imposed as a result are causing a substantial level of loss and distress for businesses, in particular for SMEs. A large number of claims are being made to insurers under the terms of business interruption (BI) insurance policies.

There is continuing and widespread concern about the lack of a positive response of some of those BI insurance policies, and the basis on which some insurers are making decisions in relation to claims.

On 1 May 2020, the Financial Conduct Authority (FCA) released a statement that they intended to obtain court declarations aimed at resolving contractual uncertainty around whether certain non-damage business interruption insurance policies provide cover for losses arising as a result of COVID-19.

The FCA recognised that many claims will already be the subject of negotiation or other dispute resolution processes. This proposed action is not intended to impact this normal claims process. It is designed to assist policyholders, and particularly SMEs, whose claims are being refused when they think the insurer should respond.

This page provides information about the Test Case and what it means for our customers. It will be kept updated with additional information.

What is the Test Case?

The issues relating to the impact of COVID-19 on business interruption policies are complex. By using a special court procedure, the FCA is seeking to obtain clarity on a much quicker timescale than would otherwise be possible.

Following consultations with insurers, policyholders and insurance brokers, the FCA has chosen a selection of policy wordings which it considers is representative of the most important issues in dispute between policyholders and insurers. The following insurers are taking part in the case: Arch Insurance (UK) Limited, Argenta Syndicate Management Limited, Ecclesiastical Insurance Office plc, Hiscox Insurance Company Limited, MS Amlin Underwriting Limited, QBE UK Ltd, Royal & Sun Alliance Insurance plc and Zurich Insurance plc.

Here is a summary of the key Test Case developments so far and key future dates:

9th June 2020
The FCA formally started the Test Case process.

16th June 2020
The first case management conference was held. At this it was confirmed that:

  • the hearing for the Test Case should start on 20 July (expected to last eight days);
  • the case will be heard by Lord Justice Flaux and Mr Justice Butcher;
  • and the parties will need to take a number of steps by specific dates before 20 July.

23rd June 2020
Insurers filed their Defences

26th June 2020
The second case management conference was held, at which the court gave various directions relating to how the test case is to proceed.

3rd July 2020
The FCA filed its reply to the Insurers’ Defences.

10th July 2020
The FCA and Intervenors’ skeleton arguments were served.

14th July 2020
The Insurers’ skeleton arguments were served.

20th to 23rd July and 27th to 30th July 2020
8 day court hearing before Lord Justice Flaux and Mr Justice Butcher.

15th September 2020
Judgement was made in favour of the FCA. The Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues. A hearing will shortly be fixed with the High Court, where any applications for appeal will likely be made.

2nd October 2020
At a ‘Consequentials’ hearing on 2 October 2020, the FCA, named insurers and Hiscox Interveners were given certificates to enable them to appeal to the Supreme Court. The Supreme Court agreed to hear the appeal.

16th November 2020
The hearing will take place by video link and will begin on Monday 16 November and is anticipated to last for four days. The appeal will be heard by five Supreme Court judges, Lord Reed, Lord Hodge, Lord Kitchin, Lord Hamblen and Lord Leggatt. The case is due to conclude on 19 November, however timelines as to when the Supreme Court will deliver its decision have not been given.

We will keep this summary updated as the appeal progresses. We do not currently have confirmation of when the outcome of the appeal will be announced.

You can also find additional information and documents on the FCA's webpage relating to the Test Case here. The FCA's webpage includes a feature that allows you to subscribe for email updated from the FCA - you may want to subscribe so that you stay updated on developments relating to the Test Case and its appeal.

The Financial Ombudsman Service has also provided some information about the potential impact of the Test Case on policyholders, which can be accessed here.

What are the next steps for our customers?

If you have made a claim or complaint that is potentially affected by the judgment you should have received an update from your insurer.

In the meantime, the test case does not prevent our customers from making or settling any claim under their business interruption policy, making a complaint to their insurer if they are dissatisfied with the outcome and referring their complaint to the Financial Ombudsman Service.

Complaints referred to the Financial Ombudsman Service

Any customers with complaints at the Financial Ombudsman Service that are potentially affected by the judgment should await further information from the Ombudsman. The Ombudsman has published information on business interruption insurance complaints on its website.