The Financial Conduct Authority has set out the details of its High Court test case set to be heard next month, which aims to clarify the extent to which business interruption insurance covers losses arising from the Covid-19 pandemic.
The FCA says that, in the wake of widespread disruption and business closures during the lockdown, many customers have made claims for the resulting losses under their BI insurance policies, adding: “There has been widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.”
It says that the issues surrounding BI policies are complex and have the potential to create ongoing uncertainty for both customers and firms, due to the variation in the types of cover provided and wordings used making it difficult to determine whether customers have cover and can make a valid claim.
It adds: “There are genuine doubts over the appropriate interpretation of the wording in some cases. This has led to uncertainty and disputes, with many customers who believe they have valid claims having these rejected by their insurer.
“We believe the circumstances of the current coronavirus emergency, and its effect on businesses holding BI policies means this uncertainty needs to be resolved as quickly as possible. We intend to obtain court declarations as part of a test case, aimed at resolving the contractual uncertainty around the validity of many BI claims.”
A trial timetable is set to be agreed next week that will see the test case heard by the High Court over five to 10 days in late July. The court’s eventual decision 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. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, including in Scotland and Northern Ireland.
The FCA says: “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 policyholders and insurers. It will not determine how much is payable under individual policies, but will provide the basis for doing so.”
According to the claim form issued at the High Court on 9 June, the FCA has brought the test case against insurers including Hiscox, Zurich and Royal & Sun Alliance seeking a determination of a number of key points of contractual construction and principle relating to insurance coverage and causation during the pandemic.
The form states: “Covid-19 and the government controls imposed as a result of it are causing a substantial level of loss and distress to businesses, in particular (although not solely) SMEs. A large number of claims are being made to insurers and managing agents under the terms of insurance policies providing cover for (among other matters) property damage and business interruption insurance losses. Several businesses and groups of businesses have indicated their intention to challenge the rejection of their claims.”
It says that the defendant insurers have indicated that certain policies which they underwrite and which provide cover in principle for business interruption losses without the need for physical/property damage “may not cover losses resulting from the Covid-19 pandemic”.
It adds that the insurers dispute whether the “necessary causal link” to any loss suffered by customers, which is the subject of claims under the policies, can be established.
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