FCA test case: Business interruption insurance

25 June 2020

Author: Rachel Craig
Practice Area: Corporate - M&A, COVID-19


In recent weeks, many policy holders have made claims under non-damage business interruption insurance (“BI”) policies for losses suffered as a result of the disruption caused by the coronavirus (COVID-19) pandemic. There has been concern, however, around the basis upon which some insurers are making decisions in relation to claims and what losses, caused by the pandemic, are covered by BI insurance.

The Financial Conduct Authority (“FCA”) is therefore seeking legal clarity on BI insurance in the High Court by way of a test case pursuant to the Financial Markets Test Case Scheme. Whilst the test case will not encompass all possible issues and disputes, the FCA hopes that it will resolve “some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers”. At the beginning of May, the FCA explained that it intended to bring such a test case “in the public interest to advance [the FCA’s] consumer protection and market integrity objectives…”.

A representative sample of policy wordings (17 to be precise) will be examined in the test case, and a number of insurers are party to the test case. The result of the case will be binding on those insurers and will provide persuasive guidance for non-parties. The FCA hopes that the outcome of the case will provide clarity such that claims under BI policies can be resolved one way or the other without delay.

Proceedings commenced in the High Court on 10 June and the court documents related to the proceedings are available through the FCA’s website. The first Case Management Conference took place on 16 June at which it was confirmed that the case will be expedited.

In the meantime, the FCA has published guidance for firms when handling claims and complaints for BI policies during the test case. The guidance can be accessed here. In particular, the FCA expects insurers to conduct:

  • A review of their policy wordings to determine whether the outcome of the test case may impact their complaints and claims handling for relevant policies. Insurers should conduct this review by 8 July 2020 and record the conclusions under their reviews. Such reviews may need to be updated as the test case develops or in light of other changing circumstances;
  • A review of relevant existing claims and complaints to reflect the results of the policy wording review. By 15 July 2020, insurers should notify policyholders whose claims or complaints for BI losses related to the pandemic are outstanding or had already been declined and confirm whether or not their claim or complaint is one which is potentially affected by the FCA’s test case; and
  • A reassessment of previously rejected claims and complaints once the test case has been determined, with results notified to relevant policyholders.

The guidance, which applies to actual or potential claims or complaints relating to non-damage BI losses arising from the coronavirus (COVID-19) pandemic, applies to:

  • An insurer who, before 9 June 2020, underwrote a relevant non-damage BI policy;
  • A managing agent who, before 9 June 2020, performed functions for a member of Lloyd’s for a relevant non-damage BI policy;
  • An insurance intermediary which carried out insurance distribution activities for a relevant non-damage BI policy before 9 June 2020; and
  • The Society of Lloyd’s.

Insurers to whom the guidance applies should appoint a senior manager to oversee the FCA’s expectations on insurers as detailed in the FCA guidance published on 17 June 2020.

Whilst the guidance and test case is primarily of relevance to insurers writing non-damage BI policies, time will tell whether the outcome of the case has wider implications for other insurance policies which are impacted by COVID-19 related claims.

We will provide further updates as the test case progresses and an analysis of any FCA guidance published thereafter.

If you have any queries the Corporate team at Carson McDowell would be happy to help.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.