Business Interruption Insurance – Are you covered? High Court FCA Test Case gives hope to SMEs

On 15 September 2020, the High Court handed down judgment in the test case brought by the FCA seeking legal clarity on the meaning and effect of certain non-damage business interruption (BI) insurance policy wordings.

The court found that, properly construed, some of the sample policy wordings that it was asked to interpret for the purposes of the test case, in principle, do provide cover for business interruption losses suffered as a result of COVID-19.

The court did not find that the eight defendant insurers that agreed to be part of the case (defendant insurers) are liable across all of the 21 different types of sample policy wording. While the test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers, each policy must be considered against the judgment to establish what it means for that policy. Policyholders with affected claims can expect to hear from their insurer within seven days of the hearing.

The FCA has published a press release and updated its webpage on the test case to summarise the key aspects of the judgment and outline the next steps. Commenting on the judgment, Christopher Woolard, FCA Interim Chief Executive, describes it as a “significant step in resolving the uncertainty being faced by policyholders”.

The FCA and the defendant insurers are now considering the judgment. Any applications to appeal will be heard at a consequentials hearing before the court, which the FCA is seeking to have as early as possible.

Unless successfully appealed, the judgment is legally binding on the defendant insurers regarding the interpretation of the representative sample of policy wordings considered by the court. The FCA notes that it also provides “persuasive guidance” for the interpretation of similar policy wordings and claims, which can be taken into account in other court cases including in Scotland and Northern Ireland, by the Financial Ombudsman Service (FOS) and the FCA in considering whether insurers are handling claims fairly. (FCA v Arch Insurance (UK) Ltd and others [2020] EWHC 2448 (Comm) (15 September 2020).)

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