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16th September 2020

FCA’s Business Interruption test case result-a reputational challenge for the insurance industry
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The High Court yesterday handed down its judgment in the Financial Conduct Authority’s(FCA)’s business interruption insurance test case.
The Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues.
Christopher Woolard, Interim chief executive of the FCA, comments ‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.
Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Our aim throughout this court action has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful.
Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.
If any parties do appeal the judgment, we would expect that to be done in as rapid a manner as possible in line with the agreement that we made with insurers at the start of this process. As we have recognised from the start of this case, thousands of small firms and potentially hundreds of thousands of jobs are relying on this."
Huw Evans, ABI director-general said "Insurers have supported this fast-track court process led by the FCA to help bring clarity for customers and we welcome the speed with which the court has delivered a ruling. The judgement divides evenly between insurers and policyholders on the main issues. The national lockdown was an unprecedented situation that posed understandable questions of interpretation for some business insurance contracts. Insurers always regret any contract dispute with their customers and will continue to reflect on feedback from recent events. We recognise this continues to be a difficult time for many businesses, small and large, and for society as a whole. That is why insurers have made a range of commitments to help both businesses and individual customers through the crisis and why the industry expects to pay out over £1.7bn in COVid-19 claims.
This is a complex judgement spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analysing the judgement, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”
Lloyd's comments "“Lloyd’s welcomes the FCA’s test case judgement which will bring coverage clarity for many policyholders with certain non-damage business interruption insurance extensions. We will now take the time to carefully consider and respond to the implications of this complex judgement for our customers as well as its impact on the Lloyd’s market, which retains less than 2% of the overall UK property SME market. Our extremely strong capital position ensures that we are well prepared to respond to the financial implications of the High Court’s judgement, and importantly to support our impacted customers.
Lloyd’s expects to pay out £5bn in COVID-19 claims to its customers around the world across a wide range of policies, including event cancellation, property, casualty, and credit. The Corporation has also committed a £15m package of support for charitable organisations responding to the pandemic, together with £15m in seed capital investment to develop a Systemic Risk Centre of Excellence, which aims to better understand, model and provide insurance for systemic catastrophic events. We are also progressing at pace a number of solutions to support insurance industry and government partnerships to fast-track societal and economic recovery and build resilience to future systemic and black swan catastrophic events.”
Insurance Newslink comments "There is going to be a great deal of debate about this judgement with legal firms already beginning to try and catch our eye with their views. The insurance industry, not just in the UK, but wider afield, is under great pressure to be perceived to be acting fairly and swiftly."

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