Judgment on FCA Business Interruption Insurance test case – key points to follow

An update on this case can be found here.

Judgment is due today on the test case by the Financial Conduct Authority (FCA) which asked the courts to consider and provide a declaration as to the meaning of a sample of BI insurance policies. The case aimed to provide further clarity to both insurers and policyholders alike.

What steps have been taken?

The FCA has identified a sample of 17 policy wordings, which address the key issues facing policyholders and insurers. The key questions arising from those sample policies are going to be put before the court. By way of example:

• Does ‘notifiable disease’ or ‘human infectious disease’ include Covid-19?
• What does the policyholder have to prove in order to establish ‘denial of access’?
• If the disease is required to be in the ‘vicinity’ of the insured premises, what does this mean?

A complete list of the key questions that the court is being asked to determine is available here.

It is expected that the test case will provide guidance for the interpretation of many other BI policies that are not included within the representative sample.

The FCA has also published ‘proposed assumed facts’ (i.e. detailing the types of business affected by the pandemic and how they have responded) and a ‘proposed issues matrix’. Links to these documents can be found here.

Consultation on draft guidance

The FCA has also published draft guidance setting out its expectations of insurers and insurance brokers when handling BI policies. Under the guidance, insurers and brokers should consider how coverage decisions may be affected by the final resolution of the test case. There is an obligation to identify policyholders who may be affected by the test case and to communicate with them, particularly regarding whether the policyholder is likely to be impacted by the outcome.