FCA Test Case – Update

31 July 2020

We are very aware that the COVID-19 pandemic is causing hardship across the UK economy and that many are experiencing difficulties in this unprecedented situation.

Unfortunately, the vast majority of our insurance cover does not include pandemics. We do appreciate, however, that the Financial Conduct Authority (FCA) has received a number of questions and concerns from customers across the insurance industry where their business interruption policies do not cover COVID-19 losses.

As such, we agreed to participate in a ‘Test Case’ with the FCA to provide clarity and certainty to customers because we think this is the right thing to do.

The Test Case was heard by the High Court between 20-30 July 2020 and we previously wrote to individual customers who have already submitted a claim or complained about the lack of cover.

What the FCA was doing

The FCA has defined the ‘Test Case’ as

“The proceedings brought by the FCA to resolve uncertainty as to whether certain non-damage business interruption insurance policies respond to claims related to the coronavirus pandemic.”

And that during the Test Case:

“acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage. We are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.”

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Further information from the FCA, legal submissions and transcripts from the Test Case hearings can be found at www.fca.org.uk/firms/business-interruption-insurance

The types of claims the FCA were looking at

The FCA has set out that:

“Our view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. This case is focused on the remainder of policies that could be argued to include cover.”

And it has defined a ‘Potentially Affected Claim’ as:

“A claim made under a relevant non-damage business interruption policy for losses relating to the coronavirus pandemic where the outcome of the claim, including issues of causation, may be affected by the final resolution in the test case, whether or not the insurer has declined the claim by issuing a declinature letter or has made an adjustment or deduction for general causation.”

It is also important to note that the FCA has commented as follows:

“Policyholders should not assume that simple inclusion of their policy wording in this case will mean their policies are responsive. We are seeking a judgment that will help policyholders and insurers have a much clearer view of which business interruption policies respond to the pandemic, and those that don’t. Therefore, the court may well decide a number of these policies respond to the pandemic and others do not.”

Next steps

The Court has now heard submissions from the FCA and the eight insurers who agreed to take part in the Test Case. The High Court Judges will now assess all the information that has been submitted and discussed during the hearings to form a Judgment. There is no fixed timetable on when that Judgment will be published but the Court has indicated that this would not be before the middle of September 2020. Following publication of the Judgment, we will write to individual customers who have already submitted a claim or complained about the lack of cover and we will also keep customers aware of significant developments via our website. We encourage customers to check this website regularly for updates and the FCA website mentioned above which also contains useful information.

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Other forms of help

The Government recognises that its own actions to save lives and beat the virus have resulted in sudden and acute difficulties for businesses large and small. It has announced several very substantial initiatives to help them overcome these, a number of which may apply to your business. We would encourage our policyholders to take full advantage of these where they can. These include loans on advantageous terms, cash grants, and employment protection measures. We recommend checking the Government website for more details and in Scotland.

We are also supporting our customers with advice and guidance, aligned to the Government’s guidelines, to help mitigate the impacts of COVID-19, which is available on our website. For specific risk advice about topics including, health and safety, fire and security, you can contact our risk experts on 0345 600 7531

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