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’). 

Last year the FCA brought 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 was 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

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:

  • The Supreme Court Judgment substantially allowed the FCA’s appeals and dismissed the insurers’ appeals.
  • The Supreme Court found that certain denial of access clauses provide cover for government guidance expressed in clear and mandatory terms. 
  • The Supreme Court also found that certain denial of access clauses provide cover for measures which either prevented the operation of a discrete part of a business or the use of a discrete part of premises. 
  • The Supreme Court ultimately reached a similar conclusion to the High Court about the scope of the cover under disease clauses providing cover for notifiable disease in a defined radius of premises (albeit by a different legal route). 
  • The Supreme Court rejected the High Court’s finding that that there was no cover for pre-trigger COVID-19 related BI losses. The Supreme Court held that trends clauses could only take into account circumstances unconnected to the COVID-19 pandemic.

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. 

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. 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 already informed other policyholders that our assessment of their claim or complaint may 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 potential impact of the Supreme Court appeal on their claim or complaint including whether the High Court’s decision concerning the words and phrases relevant to their claim or complaint was among the points raised in the appeal, and (c) the next steps AIG proposes to take with respect to their claim. 

The Supreme Court Test Case judgment and the Order that will be made following it (which we anticipate will be finalised in the next few weeks) represent the final outcome of the Test Case. We are analysing the Supreme Court Test Case judgment and its impact, if any, on our policyholders. We are writing to potentially affected policyholders with updates on the information they have already received. Our initial assessment is that, for the vast majority of our policyholders, the coverage position in respect of their policies will not be affected by the Supreme Court’s Test Case judgment. 

The FCA’s test case: your questions answered

The Test Case is a claim in the High Court that the Financial Conduct Authority (the ‘FCA’) brought earlier this year. AIG is not a party to 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 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 Court considered legal questions about:

  • Whether, in principle, certain policies which cover business interruption loss caused by disease or by some prevention or restriction of access to or use of your business premises caused by government or authority action, respond to COVID-19 related business interruption loss.
  • Where claims for COVID-19 related business interruption claims are covered, how the amounts payable under the policies should be calculated.
  • Whether certain exclusions, including for pollution and contamination, preclude claims for COVID-19 related business interruption losses.

The Court did not consider whether any specific claims are valid, or the value of any individual claims.

Some of the Parties to the Test Case appealed to the Supreme Court against parts of the Test Case judgment given by the High Court. If your claim is ‘potentially’ affected by the Test Case you will have received a letter explaining the potential impact of the Supreme Court appeal on your claim or complaint, including whether the High Court’s decision on the words and phrases similar to those used in your policy was among the points raised in the appeal. If the High Court’s decision on those words and phrases was not among the points being appealed then the High Court’s decision is, insofar as relevant to your claim or complaint, likely to be the final resolution of the Test Case.

The Supreme Court gave its decision judgment in the Test Case on 15 January 2021. The Supreme Court Test Case judgment represents the final outcome of the Test Case. We are analysing the Supreme Court Test Case judgment and its impact, if any, on our policyholders. We will provide potentially affected policyholders with updates on the information they have already received as soon as possible, if necessary, in due course. Our initial assessment is that, for the vast majority of our policyholders, the coverage position in respect of their policies will reflect what as communicated to them after the High Court’s Test Case judgment.

The Test Case does 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 are 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:

  • 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.

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:

  • The High Court’s decision that there was no cover for pre-trigger COVID-19 losses and that, instead, pre-trigger COVID-19 losses could be taken into account by insurers as a ‘trend’ under trends clauses. 
  • The High Court’s finding that certain denial of access wordings only respond to legally binding government action (and not to government advice). 
  • The High Court’s finding that certain denial of access wordings only respond to a complete denial of access for business purposes.

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 High Court’s decisions on the RSA4 (Marsh Resilience) policy wording; and
  • The High Court’s decision that policy wording concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises did not provide cover for the national COVID-19 pandemic.

As noted above, our initial assessment is that, for the vast majority of our policyholders, the coverage position in respect of their policies will reflect what as communicated to them after the High Court’s Test Case judgment. 

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: 

  • The Supreme Court Judgment substantially allowed the FCA’s appeals and dismissed the insurers’ appeals.
  • The Supreme Court found that certain denial of access clauses should provide cover for government guidance expressed in clear and mandatory terms. 
  • The Supreme Court also found that certain denial of access clauses should provide cover for measures which either prevented the operation of a discrete part of a business or the use of a discrete part of premises. 
  • The Supreme Court ultimately reached a similar conclusion to the High Court about the scope of the cover under disease clauses (albeit by a different legal route). 
  • The Supreme Court rejected the High Court’s finding that that there was no cover for pre-trigger COVID-19 related BI losses. The Supreme Court held that trends clauses could only take into account circumstances unconnected to the COVID-19 pandemic.

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 Test Case judgment on their claim or complaint, (b) the potential impact of the Supreme Court appeal on their claim or complaint including whether the High Court’s decision concerning the words and phrases relevant to their claim or complaint was among the points raised in the appeal, and (c) the next steps AIG proposes to take with respect to their claim. 

The Supreme Court Test Case judgment and the Order that will be made following it (which we anticipate will be finalised in the next few weeks) represent the final outcome of the Test Case. We are analysing the Supreme Court Test Case judgment and its impact, if any, on our policyholders. We will provide potentially affected policyholders with updates on the information they have already received as soon as possible. Our initial assessment is that, for the vast majority of our policyholders, the coverage position in respect of their policies will reflect what as communicated to them after the High Court’s Test Case judgment.  

The Supreme Court Test Case judgment and the Order that will be made following it (which we anticipate will be finalised in the next few weeks) represent the final outcome of the Test Case. We are analysing the Supreme Court Test Case judgment and its impact, if any, on our policyholders. 

Our assessment is that, for the vast majority of our policyholders, the coverage position in respect of their policies will not be affected by the Supreme Court’s Test Case judgment:

  • 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. Having considered the High Court’s Test Case judgment and the Supreme Court’s Test Case judgment, that assessment has not changed. We do not therefore 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 have already explained to those policyholders (a) the impact of the High Court’s Test Case judgment, and (b) the impact that we thought the Supreme Court appeal might have on their claim or complaint. We are considering the impact of the Supreme Court Test Case judgment on each potentially affected policy and are writing to those potentially affected policyholders with updates on the information they have already received.

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.