Business interruption insurance – the FCA seeks legal clarity

The Financial Conduct Authority (FCA) is seeking a judgment from the courts to resolve some contractual uncertainty in business interruption (BI) insurance policies that has arisen as a result of the COVID-19 pandemic. In the public interest and to avoid numerous BI policyholders seeking guidance from the courts at considerable expense, the FCA has put forward policyholders' arguments to their best advantage for a quicker and cheaper solution. This is not intended to replace the existing options or current claims (for example negotiation, settlement, arbitration etc.), rather, it is to provide clarity and certainty for some policyholders whose claims, as the FCA notes, are being refused when the firms think they should be considered.

BI policies are complex, and the terms and types of cover provided can vary significantly across the industry. Both customers and firms, are facing increasing uncertainty and difficulty in determining whether a policyholder has cover and can make a claim, and the FCA has doubts over the interpretation of the terms of BI policies in some cases. To avoid the increase in disputes arising during the current coronavirus crisis, the FCA has decided to resolve some key contractual uncertainties through its test case in the High Court. Accordingly, the FCA engaged with willing policyholders and insurance intermediaries over unresolved disputes with insurers over BI policy terms to identify a sample of cases. Taylor Wessing is working with the hospitality sector and has partnered with the trade association UKHospitality to consider how the FCA court action impacts on the BI insurance claims of policy holders in the hospitality sector (see here).

Following an initial consultation in May 2020, on 1 June 2020, the FCA provided an update on progress on its court action. Having reviewed 500 relevant policies from 40 insurers, it identified a preliminary list of affected insurers and policies and selected a representative sample of 19 policy wordings that capture the majority of the key issues that could be in dispute.

On 17 June 2020, the FCA published finalised guidance setting out its expectations for insurers and insurance intermediaries when handling claims and complaints for BI policies during the test case brought by the FCA. The guidance highlights the steps that firms should be taking to: identify the potential implications of the test case on decisions regarding claims and complaints, keep policyholders informed about the test case and its implications, and treat policyholders fairly during the test case and when it is resolved. The guidance came into immediate effect and the FCA stated that it will review the guidance in the light of the progress of the test case and, in any event, within six months of it coming into effect to assess whether it is still needed. The FCA also published new assumed facts (containing factual scenarios which some parties will use in the trial to illustrate their views as to how coverage is triggered), an issues matrix and questions for determination by the court.

The BI insurance test case (claim no: FL-2020-000018) was heard before the High Court in a trial that ran for eight days, ending on 30 July 2020. On 18 August 2020, the FCA updated its webpage to link the final transcripts for the trial. Lord Justice Flaux, the presiding judge, stated that he hopes the judgment would be available by the middle of September, although this was not a binding indication.

The FCA has published a dedicated webpage to provide information, updates and access to relevant documents including court pleadings. Further, policyholders can sign up to receive email updates from the FCA on BI insurance and the High Court test case.

Help is at hand

If you would like to discuss any of the points arising out of the FCA's announcement or if you would like assistance in making a submission to the FCA on your BI policy concerns, please get in touch.