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Background to the FCA’s Test Case

If you have purchased an AIG insurance policy that provides business interruption cover of the type described below then you may wish to know about a High Court case brought by the UK regulator – the Financial Conduct Authority (the ‘FCA’). 

Earlier this year the FCA started a case in the High Court about the extent to which certain non-damage business interruption policy wordings respond to COVID-19 related losses (the ‘Test Case’). 

The FCA’s purpose in bringing the Test Case is to provide clarity and certainty for policyholders and insurers about whether certain policy wordings cover non-damage business interruption claims arising from COVID-19. The FCA made arguments in the interests of policyholders in the Test Case.

The High Court Judgment in the Test Case

The High Court gave its decision (known as its ‘judgment’) in the Test Case on 15 September 2020. You can find the judgment [here]. You can find more detailed information about the Test Case, including the judgment, on the FCA’s website [here].

The High Court’s Test Case judgment is long and complex. In brief summary:

  • The High Court generally found in favour of the FCA/policyholders on questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from the occurrence of disease (for policies where disease is defined to include COVID-19) within a vicinity or radius of insured premises. 
  • The High Court found the position varied in relation to questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from denial of access to insured premises as a result of government action. For some wordings, for example those concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises, it was found that there was no cover in respect of the national COVID-19 pandemic.
  • The High Court found certain exclusions in some policy wordings (concerning for example pollution and contamination) did not apply where those policy wordings were found to provide cover for COVID-19 related business interruption losses.
  • The High Court did not determine fact-specific issues such as whether claims can be made for multiple separate instances of loss or the amount that should be paid in particular cases.

Appeal of the Test Case Judgment

The High Court’s judgment could be subject to an ‘appeal’ to the Court of Appeal and/or the Supreme Court. An ‘appeal’ involves the Court of Appeal or Supreme Court re-considering the High Court’s answers to the questions considered by the High Court. An appeal could therefore change the outcome of the Test Case.

Whether an appeal happens, either to the Court of Appeal or straight to the Supreme Court, is a matter for the courts to decide. The Court is likely to determine what appeal (if any) should take place in October. Any appeal process may not finish until the end of 2020 or 2021.

We do not yet know whether anyone will appeal against the High Court’s decision. We therefore do not yet know whether the High Court’s judgment represents the final outcome to the Test Case. 

Consequently, we are not yet able to confirm the effect of the Test Case for our policyholders. 

Timetable for the Test Case 

The FCA started the Test Case on 9 June 2020 against 8 defendant insurers. AIG is not a defendant in the Test Case. 

The trial of the Test Case took place over eight days between 20 July and 30 July 2020. Before that, the FCA and the defendant insurers submitted documents known as Statements of Case, which set out their formal position on the legal issues in the Test Case, and more detailed explanations of their position in documents called skeleton arguments. 

The High Court gave judgment on 15 September 2020. As mentioned above, the High Court’s judgment may be appealed by the FCA or the defendant insurers to the Court of Appeal and/or the Supreme Court. This may delay final resolution of the Test Case further. We do not yet know whether the FCA or the defendant insurers intend to appeal. Consequently, we are not yet able to confirm the effect of the Test Case for our policyholders.

Implications for claims on AIG policies

The FCA published guidance to insurers on 17 June 2020 on the handling of claims and complaints concerning non-damage business interruption claims related to COVID-19 under relevant policies (the ‘Guidance’). 

In doing what the FCA expects under the Guidance, we have: 

  • reviewed relevant non-damage business interruption policies (i.e. any policies which have the ‘Disease’ and/or ‘Prevention of Access’ covers mentioned above and for which AIG has declined or reduced COVID-19-related business interruption claims or stated that claims are not covered) to determine whether claims or complaints under them may be affected by the Test Case; 
  • decided whether claims or complaints that may be affected should be progressed pending the outcome of the Test Case; and 
  • informed policyholders of the outcome of that review.

We have written to policyholders (or, where applicable, their brokers) who have relevant non-damage business interruption policies and who have made claims or complaints in relation to COVID-19-related business interruption, to inform them of the outcome of our review and how it affects their claims or complaints.

We have already informed some policyholders that we believed our decision regarding their claim or complaint would not be affected by the final outcome of the Test Case, and therefore we did not consider it necessary to re-open their claim or complaint. The High Court’s Test Case judgment has not changed that view, and so we do not propose to re-open any of those policyholders’ claims or complaints. 

We have already informed other policyholders that our assessment of their claim or complaint may be affected by the final outcome of the Test Case. We will be writing further to those policyholders once we know the scope of any appeal of the High Court’s Test Case judgment, which is likely to become clearer during October. We will continue to write to policyholders with information about the Test Case where any new claims are made under relevant non-damage business interruption policies which relate to COVID-19-related business interruption between now and the time when we know whether the High Court judgment is the final outcome of the Test Case.

Other sources of information about the Test Case

The FCA’s dedicated webpage (https://www.fca.org.uk/firms/business-interruption-insurance) provides helpful and detailed information on the Test Case, including the formal Court documents filed by the parties. You may wish to subscribe for email updates on the Test Case from the FCA on the FCA’s webpage.  

Further information regarding business interruption insurance cases is also available on the Financial Ombudsman Service’s webpage (https://www.financial-ombudsman.org.uk/businesses/complaints-deal/complaints/coronavirus-covid-19-information-businesses). This may be of interest to any policyholders who have made complaints in relation to COVID-19-related business interruption and whose complaints have been referred to the Financial Ombudsman Service.