04/06/2020 Briefing

The UK Financial Conduct Authority (FCA) has published additional information on its plan to bring certain business interruption wordings before the English High Court in a Test Case to resolve contractual uncertainty as to whether losses arising from COVID-19 are covered by policies containing such wording. Christopher Woolard, Interim Chief Executive at the FCA has said that the case is “aimed at providing clarity and certainty for everyone involved in these business interruption disputes, policyholder and insurer alike”.

The Test Case will focus on the cohort of business interruption policies where it is arguable that they include cover for COVID-19 losses. The FCA has set out its approach to choosing the representative wording for the Test Case: since 1 May, the FCA has approached 56 insurers and reviewed over 500 policies. In addition, the FCA received over 1,200 submissions from policyholders and brokers that are in dispute with their insurers over the terms of their policies. Arising out of that, the FCA has now produced a sample list of 17 policy wordings that capture the key issues that are in dispute. These issues include, for example, whether the policy covers government advice to close the business or whether a government order forcing the closure of the business is required or whether the outbreak of an infectious disease must take place within a certain vicinity of the business. The sample list of wording is here.

On its website, the FCA identifies the eight insurers that have entered into a framework agreement with the FCA and have agreed to be defendants in the Test Case. A further eight insurers are also listed on the website as using at least one of the policy wordings set out in the sample but will not be directly involved in the Test Case. The agreement says that the objective of the case is to achieve the maximum clarity possible for the maximum number of policyholders and to set a legal precedent to resolve “to a substantial degree” the uncertainty that has arisen in relation to business interruption policies in the context of the pandemic. The framework agreement also sets out the detail of the process for the Test Case that the FCA and the eight defendant insurers have agreed: a set of “agreed facts” will be decided between the parties. This will include facts such as the dates on which certain government decisions were made. A separate set of “assumed facts” will be presented to the Court to illustrate the potential fact patterns that might arise in relation to the disputed policies.

An indicative timeline is included in the framework agreement. A claim form will be submitted to the English Commercial Court on 9 June 2020 with a view to having the case heard in the second half of July.

The FCA has stressed that the list of policies and the insurers affected are not exhaustive and, with that in mind, has produced a consultation on draft guidance for insurers and intermediaries who are handling claims or complaints on policies which may be relevant to the dispute during the period of the test case. The FCA have cautioned against policyholders assuming that their losses are covered simply because their policy wording is included in the sample. They note that the Court may decide that some of the wordings in the sample are responsive to the COVID-19 pandemic and others are not.

The FCA webpage where all information on the Test Case is provided is here.

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