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The FCA’s High Court case about business interruption insurance

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 that the UK regulator – the Financial Conduct Authority (the ‘FCA’) – has started.

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

The policy wordings which the High Court is examining in the Test Case cover business interruption losses arising:

  • if there is ‘notifiable disease’, ‘specified disease’ or some other categorisation of disease either at all or within a certain distance or within the vicinity of premises (‘Disease’ cover), or
  • where action by an authority or some other happening prevents or restricts access to or use of premises (‘Prevention of Access’ cover). 

The Test Case concerns legal questions about whether certain policies provide cover for COVID-19 related losses, the appropriate way to calculate what the insurer should pay if the policies do provide that cover, and the relevance of certain exclusions. The legal issues in the Test Case do not include 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. 

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

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. 

We do not know for certain when the High Court will give judgment in the Test Case, but the High Court has indicated that it will not be before late September 2020.

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. 

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 will write to policyholders with similar information where any new claims are made under relevant non-damage business interruption policies which relate to COVID-19-related business interruption. 

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.