On 15 September The High Court handed down its judgment on the Financial Conduct Authority’s (FCA) business interruption insurance test case.

The Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues. 

Following the judgement, Christopher Woolard, Interim Chief Executive of the FCA commented, “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.  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. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.”

Background

Many policyholders whose businesses were affected by the COVID-19 pandemic suffered significant losses, resulting in large numbers of claims under business interruption (BI) policies.

Most SME policies are focussed on property damage and only have basic cover for BI as a consequence of property damage.   But some policies also cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’). In some cases, insurers have accepted liability under these policies.  In other cases, insurers have disputed liability while policyholders considered that it existed, leading to widespread concern about the lack of clarity and certainty. 

The FCA’s aim in bringing the test case was to urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible. The FCA did this by selecting a representative sample of policy wordings issued by eight insurers. The FCA’s role was to put forward policyholders’ arguments to their best advantage in the public interest. 370,000 policyholders were identified as holding policies that may be affected by the outcome of the test case.   

The judgment is complex, running to over 150 pages and deals with many issues. The FCA’s legal team at Herbert Smith Freehills have published a summary on their website, which may be referred to for further detail.