COVID-19 Update – Financial Conduct Authority Business Interruption Insurance Test Case

The below announcement applies to policyholders with non-damage business interruption policies underwritten before 17 June 2020.

The coronavirus pandemic has caused considerable uncertainty for businesses operating during these challenging times. On 9 June 2020, the Financial Conduct Authority (“FCA”) commenced proceedings in the High Court to seek legal clarity on whether certain non-damage business interruption (“BI”) insurance policies cover loss arising from Covid-19 (the “Test Case”).

The result of the Test Case will be legally binding on the insurers that are parties to the Test Case in respect of the interpretation of the representative sample of policy wordings considered by the court. Whilst Canopius Managing Agents Ltd (“Canopius”) is not a party to the Test Case, the result will provide guidance for the interpretation of similar policy wordings and claims. This can be taken into account in other court cases, by the Financial Ombudsman Service (“FOS”) and by the FCA.

Scope of the Test Case

The Test Case is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues, to provide clarity for both policyholders and insurers.
In summary, the core issues that the Test Case is seeking to resolve are:

  • Issues of coverage in relation to ‘disease’ and ‘denial of access’ clauses (including any relevant exclusions); and
  • Causation (including any relevant ‘trends clause’ or equivalent wording)

The test case is not seeking to resolve:

  • coverage issues relating to clauses that have an exhaustive list of diseases which does not include Covid-19;
  • coverage issues relating to clauses which require the disease to be present on the insured premises;
    issues concerning mis-selling of policies; and
  • other issues flowing from the determination of the questions in the test case such as aggregation, additional causation issues specific to loss of rent and similar claims under a property owner’s policy, and the specific quantum of any particular claims.

The Test Case will not determine how much is payable under individual policies, but is likely to provide guidance on how quantum issues should be addressed.

Potentially affected claims/complaints

By 15 July 2020, Canopius will individually notify policyholders who have made claims or complaints for BI losses relating to Covid-19 under relevant non-damage BI policies whether their claim or complaint is a ‘potentially affected claim’ or a ‘potentially affected complaint’ and we will explain the implications of that.

If a claim or complaint may be affected by the Test Case, policyholders will be provided with further key information about the Test Case, subject to the terms of the FCA Guidance. We will be providing more generalised updates on the Test Case on our website as the case progresses, including:

  • when judgments are given;
  • when the Test Case reaches its final outcome; and
  • any other significant development in the Test Case

The timetable for proceedings

9 June FCA started claim in the High Court
16 June Case management conference, at which the court fixed the timetable for the case and other procedural matters
23 June Insurers file defences
26 June Further case management conference, at which the court will deal with any outstanding procedural matters to ensure the case is ready for trial
3 July FCA files reply
1st half July Skeleton arguments and replies served
20-23 July & 27-30 July 8 day court hearing before Lord Justice Flaux and Mr Justice Butcher
16-19 November 4 day appeal court hearing before Lord Reed, Lord Hodge, Lord Kitchin, Lord Hamblen and Lord Leggat.

The judgment on the Test Case has been handed down following the High Court trial (a copy is available on the FCA’s website), which ended on 30 July 2020. The FCA, the Hiscox Action Group and six insurers have now been granted permission to appeal to the Supreme Court. The appeal hearing will start on 16 November and is currently scheduled to last four days.

We are currently assessing the impact of the appeal on policyholders who have made potentially affected claims/complaints and will shortly be writing individually to those policyholders.

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