UK FCA Business Interruption Ruling


On Sep. 15, UK FCA issued result of test case re Covid-19 insurance.


  • FCA announced high court judgment, in a test case on business interruption insurance.
  • Found in favor of FCA arguments advanced for policyholders on majority of key issues.
  • FCA legal team at Herbert Smith Freehills also published a summary on their website.
  • Follows FCA May 2020 began business interruption insurance test case, see #76879.
  • Follows Jun. 2020, FCA issued feedback on draft BI insurance guidance, see #79921.
  • Follows Aug. 2020, FCA statement deductions re government support, see #83361.
  • Insurers Should Reflect
  • Insurers should reflect on clarity provided in the ruling and irrespective of any appeals, consider steps they can take now, to progress claims of the type that should be paid.
  • FCA highlighted that insurers should also communicate directly and quickly with their policyholders, who have made claims affected by the judgment, to explain next steps.
  • Types of Insurance Cover
  • Many policyholders whose businesses were affected by Covid-19 suffered major losses.
  • Losses resulted in a large numbers of claims under business interruption (BI) policies.
  • Most SME policies are focused on property damage, and only have basic cover for BI.
  • Some cover BI from infectious / notifiable diseases (disease clauses) and non-damage denial of access and public authority closures or restrictions (denial of access clauses).
  • FCA Aim of Test Case
  • In some cases, insurers accepted liability, in others, insurers disputed coverage scope.
  • Mixed responses lead to widespread concerns, about the lack of clarity and certainty.
  • FCA aimed to urgently clarify issues of contractual uncertainty for as many as possible.
  • They selected a representative sample of policy wordings, as issued by eight insurers.
  • FCA put forward policyholders’ arguments, to their best advantage in public interest.
  • 370,000 policyholders were identified as holding policies that may be affected by case.
  • High Court Judgement
  • High court judgment is complex, runs to over 150 pages, and deals with many issues.
  • FCA sought to establish liability, under the representative sample of policy wordings.
  • The FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.
  • Judgment says that most, but not all, of disease clauses in the sample provide cover.
  • It also says that certain denial of access clauses in the sample provide cover, but this depends on detailed wording of the clause, and how a specific business was affected.
  • Includes if a firm subject to mandatory closure order, was ordered to close completely.
  • Clarified that Covid-19 pandemic and Government and public response, were a single cause of covered loss, a key requirement for claims to be paid even if policy covers.
  • Policyholders
  • Judgment did not say that the eight defendant insurers are liable across all of the 21 different types of policy wording in the representative sample considered by the court.
  • Each policy needs to be considered against judgment, to work out impact on a policy.
  • Policyholders with affected claims can expect to hear from insurers within next 7 days.
  • Next Steps
  • FCA and insurers are considering judgment and what it might mean in case of appeal.
  • Any applications to appeal, will be heard at consequentials hearing before High Court.
  • FCA and defendant insurers have agreed that they will seek to have any appeal heard on an expedited basis, given the importance of the matter for so many policyholders.
  • This includes exploring the possibility of any appeal being a leapfrog appeal to the UK Supreme Court, rather than needing to be initially heard by the UK Court of Appeal.
  • FCA will keep policyholders updated of matters as they progress, via specific webpage.
  • Sep. 18, 2020 Dear CEO Letter
  • On Sep. 18, 2020, UK FCA issued Dear CEO letter on business interruption insurance.
  • In some cases, insurers will feel judgment gives them clarity to conclude their claims processes with their customers, FCA encourage these to do so as quickly as possible.
  • In other cases, may decide to wait to understand if a specific point will be appealed.
  • Expect insurers to write to policyholders by Sep. 22, 2020, being clear on next steps.
  • Important insurers reassess, settle claims quickly, making interim payments wherever possible where legal process is complete or claim has been accepted in full or in part.
  • Expect all insurers to take a pragmatic, transparent and consistent approach to their interactions with policyholders over any remaining evidence re individual claims.
  • Includes evidence for proximity and prevalence for disease coverage clauses.
  • Will publish additional information to help policyholders and insurers with the process of providing and assessing appropriate evidence on proximity and prevalence.
  • Where wordings affected by test case, and relevant questions are subject of an appeal, expect insurers to continue to progress claims of type judgment says should be paid.
  • So they are as progressed as possible when any appeal judgment is handed down.
  • Covered deductions some insurers have made for some types of Government support.
  • Consequentials hearing will take place on Oct. 2, 2020, to hear submissions on the appropriate declarations to be made by the Court and on any applications for appeal.
  • Sep. 25, 2020 Update
  • On Sep. 25, 2020, UK FCA updated guidance page on business interruption insurance.
  • Following hundreds of requests, held meetings with policyholders, other stakeholders.
  • Set out various deadlines in relation to any potential appeal against the judgement.
  • Highlighted that the test case was not intended to encompass all possible disputes.
  • Was to resolve some key contractual uncertainties / causation issues to provide clarity.
  • Does not determine how much payable under individual policy, provides basis to do so.

Regulators Lawsuit; UK FCA
Entity Types Corp; IB; Ins
Reference Gd 9/25/2020; Lt, Gd 9/18/2020; PR, LR [2020] EWHC 2448 (Comm), FL-2020-000018, 9/15/2020; COVID-19
Functions Compliance; Financial; Legal; Operations; Risk; Treasury
Countries United Kingdom
Products Insurance; Insurance-Property
Regions EMEA
Rule Type Guidance
Rule Date 9/15/2020
Effective Date 9/25/2020
Rule Id 86124
Linked to Rule :76879
Reg. Last Update 9/25/2020
Report Section UK

Last substantive update on 09/28/2020