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’).
In 2020 the FCA brought a case in the High Court about the extent to which certain non-damage business interruption policy wordings responded to COVID-19 related losses (the ‘Test Case’).
The FCA’s purpose in bringing the Test Case was to provide clarity and certainty for policyholders and insurers about whether certain policy wordings covered 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 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:
Some of the parties to the Test Case appealed against parts of the Test Case judgment. The appeal involved the Supreme Court re-considering the High Court’s answers to the questions considered by the High Court.
The appeal took place over four days between 16 and 19 November 2020. You can find more detailed information about the appeal, including the parties’ written submissions and transcripts of the hearing, on the FCA’s website [here].
The Supreme Court gave its judgment in the Test Case on 15 January 2021. You can find the judgment [here] and a summary [here] on the Supreme Court website. The FCA have also published a summary on their website [here].
The Supreme Court’s Test Case judgment is long and complex. In brief summary:
Several aspects of the High Court’s judgment were not appealed and were therefore not dealt with in the Supreme Court Decision. For example, the High Court’s decision in respect of wording concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises was not appealed.
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:
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 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. Neither the High Court’s Test Case judgment nor the Supreme Court’s Test Case judgment have changed that view, and so we do not propose to re-open any of those policyholders’ claims or complaints.
We have informed other policyholders that our assessment of their claim or complaint might be affected by the final outcome of the Test Case. We have written further to those policyholders to explain (a) the impact of the High Court’s Test Case judgment on their claim or complaint, (b) the impact of the Supreme Court’s Test Case judgment on their claim or complaint, and (c) the next steps AIG proposes to take with respect to their claim.
The Supreme Court Test Case judgment and the Order that was made following it represent the final outcome of the Test Case.
The Test Case was a claim that the Financial Conduct Authority (the ‘FCA’) brought in 2020. AIG was not a party to the Test Case. The FCA’s purpose in bringing the Test Case was to provide clarity and certainty for policyholders and insurers about whether certain policy wordings covered 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 gave its decision (known as its ‘judgment’) in the Test Case on 15 September 2020. Links to more detailed information about this judgment are set out below.
The FCA and some of the defendant insurers appealed parts of the High Court judgment to the Supreme Court (meaning that they asked the Supreme Court to decide whether they agree with the High Court’s decision). The Supreme Court gave its judgment in the Test Case on 15 January 2021. Links to more detailed information about this judgment are set out below.
The Test Case considered legal questions about:
The Court did not consider whether any specific claims were valid, or the value of any individual claims.
You may have received a letter/email which said your claim was ‘potentially’ affected by the Test Case. That was likely because your claim related to a provision in your policy concerning business interruption loss caused by disease or some prevention or restriction of access to or use of your business premises caused by government or authority action, and that provision in your policy is similar or identical to policy wordings that the Court considered in the Test Case.
We considered (a) the impact of the High Court’s Test Case judgment, and (b) the impact of the Supreme Court’s Test Case judgment on claims and complaints ‘potentially’ affected by the Test Case. We have written to those policyholders to inform them of the outcome of our review and how it affects their claims or complaints.
The Test Case did not determine all the legal issues relevant to claims/complaints, or factual matters relating to the amount if any that insurers must pay in respect of claims/complaints.
The FCA expects all insurers including AIG to follow the Guidance it has published in relation to the Test Case, and AIG is doing that.
That Guidance applies to all insurers that have issued non-damage business interruption cover which is similar to the policy wordings considered in the Test Case, not just the eight insurers who were directly involved in the Test Case. Insurers are expected to determine whether claims concerning COVID-19 related losses are potentially affected by the Test Case.
One of AIG’s standard form non-damage business interruption policy wordings (Marsh Resilience, known as RSA4 in the litigation) was considered in the Test Case. Certain of AIG’s other standard form non-damage business interruption policy wordings contain words and phrases similar to certain words and phrases used in policy wordings considered in the Test Case. Those policy wordings were all potentially affected by the Test Case.
The High Court gave 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:
Some of the parties to the Test Case appealed against parts of the Test Case judgment. The ‘appeal’ involved the Supreme Court reconsidering the High Court’s answers to the questions considered by the High Court.
The appeal took place over four days between 16 and 19 November 2020. You can find more detailed information about the appeal, including the parties’ written submissions and transcripts of the hearing, on the FCA’s website [here].
The defendant insurers’ appeals focussed on the High Court’s decision that where cover for COVID-19 was established under disease clauses, that cover extended to cover the national COVID-19 pandemic and the national UK government response.
The FCA and Hiscox Action Group’s appeals focussed on:
Several aspects of the High Court’s judgment were not appealed. For AIG’s standard form non-damage business interruption policy wordings, the key points not being appealed included:
The Supreme Court gave its judgment in the Test Case on 15 January 2021. You can find the judgment [here] and a summary [here] on the Supreme Court website. The FCA have also published a summary on their website [here].
The Supreme Court’s Test Case judgment is long and complex. In brief summary:
No. We will keep you updated on progress on the AIG website and, if necessary, by updating you directly. We will also be in touch if there are steps we need to take, for example to collect information from you. You should keep all records relevant to your claim so that you have them available if we need them to determine your claim.
We have written individually to policyholders with potentially affected claims to explain (a) the impact of the High Court’s Test Case judgment on their claim or complaint, (b) the impact of the Supreme Court’s Test Case judgment on their claim or complaint, and (c) the next steps AIG proposes to take with respect to their claim.
The Supreme Court Test Case judgment and the Order that was made following it represent the final outcome of the Test Case.
The Supreme Court Test Case judgment and the Order that was be made following it represent the final outcome of the Test Case.
We have written individually to policyholders to inform them of the impact of the Test Case on their claim or complaint. We do not propose to re-open any of those policyholders’ claims or complaints as a result of 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.