FCA gives update on validity of business interruption claims test case

1st June 2020

The Financial Conduct Authority (FCA) has issued an update on the progress made on its court action aimed at providing clarity and certainty around disputed business interruption (BI) insurance policies claims arising from the Coronavirus (Covid-19) pandemic.  The hearing for the test case is expected to begin in the second half of July 2020.

The update sets out more detail on the proposed court action, including identifying the representative sample of policy wordings to be examined in the test case, the insurers that use those wordings, and which of those insurers the FCA has invited, and have agreed, to participate in the proceedings.

The FCA has approached 56 insurers and reviewed more than 500 relevant policies from 40 insurers since it first announced at the beginning of May that it was going to pursue a test case.  The regulator has identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute.

The FCA has published an initial list of affected firms https://www.fca.org.uk/publication/corporate/preliminary-list-affected-insurers-policies.pdf and the policy wordings included in the test case which it noted was not exhaustive.  These insurers have signed a framework agreement with the regulator https://www.fca.org.uk/publication/corporate/bi-interruption-test-case-framework-agreement.pdf governing the process and timetable for the test case.

Sample of policy wordings

The FCA has also selected a representative sample of 17 policy wordings  https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-proposed-representative-sample-of-policy-wordings.pdf to examine in the test case.  The FCA identified policies which are representative of the key arguable issues and invited insurers to participate on the basis of securing the maximum relevant coverage for relevant policies while minimising the number of parties engaged before the court in order to make the process as swift as possible for the court.

The FCA expects to publish a list of all the relevant insurers and policies that may have impacted wordings in early July.

Given that the list of affected insurers and wordings was not definitive, the regulator also published a short consultation on draft guidance for firms https://www.fca.org.uk/publications/guidance-consultations/business-interruption-insurance-test-case-draft-firms asking all insurers to check their policy wordings against those it intends to test to see if theirs will be impacted by the outcome of the BI test case.  The draft guidance consultation on also sets out the FCA’s expectations of all firms handling BI claims and any related complaints between now and the court decision, including an expectation that they identify those policies where their decision to deny claims may be affected by the test case.  Firms will need to respond to this draft guidance consultation by close of business on Friday 5th June 2020.

Other documents accompanying the test case

In addition to the FCA’s proposed representative sample of terms, it has also published proposed assumed facts https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-proposed-assumed-facts.pdf (for example, the types of business and how they responded to the pandemic), a proposed issues matrix  https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-proposed-issues-matrix.pdf and proposed questions for determination by the court. https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-proposed-questions-for-determination.pdf

The FCA has invited comments from other insurers, policyholders and other stakeholders on these documents by 3pm on Friday 5th June 2020.

For all interested parties the FCA’s team at Herbert Smith Freehills will be available on 3 and 4 June to speak directly with as many policyholders and intermediaries as possible.

Members can find a summary of the work being undertaken to bring the test case to court on the FCA’s business interruption webpage https://www.fca.org.uk/firms/business-interruption-insurance.

Time line of test case

The FCA set out the principal next steps and timelines for how it envisaged the test case to proceed below. There remain a number of uncertainties to the timeline including the consent of the court:

  • 9th June – FCA files claim form and particulars
  • 11th June – Case management conference, at which the court will be invited to fix the timetable for the case
  • 23rd June – Insurers file defences
  • c.26th June – Further case management conference
  • 3rd July – FCA files reply
  • First half July – Skeleton arguments and replies served
  • Second half July – 5 to 10 day court hearing