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Result of FCA’s Business Interruption test case

The High Court has today handed down its judgment in the Financial Conduct Authority’s (FCA)’s 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.

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.

“Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.

“Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

“If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this.”

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.

 

What today’s judgment means for policyholders

Although the judgment will bring welcome news for many policyholders, the judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the Court.  Each policy needs to be considered against the detailed judgment to work out what it means for that policy.  Policyholders with affected claims can expect to hear from their insurer within the next 7 days.

The test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers.  It enabled them to benefit from the expert legal team assembled by the FCA, providing a comparatively quick and cost-effective solution to the legal uncertainty in the business interruption insurance market.

The test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. The judgment does not determine how much is payable under individual policies, but will provide much of the basis for doing so.

It is possible that the judgment will be appealed.  Any appeal does not preclude policyholders seeking to settle their claims with their insurer before the outcome of any appeal is known.

It is important that policyholders, action groups, insurance intermediaries and their legal representatives are properly engaged throughout the test case process.  The FCA has therefore arranged an opportunity for them to talk to its legal team individually on Monday 21 September or Tuesday 22 September – find out more.