Non-Damage Business Interruption Cover and the FCA High Court Test Case

July 15th, 2020 Posted by Uncategorised

We want to provide an update with regards to the FCA Business Interruption insurance test case and how this might affect our clients.

The coronavirus pandemic has shined a spotlight on the cover provided by non-damage Business Interruption insurance policies. The Financial Conduct Authority (FCA) announced its intention to seek clarity and certainty around this issue by holding a ‘test case’ action in the high court against what they consider to be a range of non-damage Business Interruption policy wordings that are representative of those used by the insurance industry. 

Hamilton Leigh is one of many insurance organisations to have voiced dissatisfaction with the way certain insurance companies conducted themselves in regard to Covid-19 Business Insurance claims. On 24th April, we began lobbying government on behalf of our clients and proposed a Covid-19 Business Interruption Insurance Recovery Scheme to provide additional financial support to businesses in the UK.

The initiative has certainly gained traction and as a result of all the lobbying and complaints, the Government instructed the FCA to intervene. The FCA announced its intention to bring a test case in the High Court to challenge insurers’ decisions. The aim of this test case is for the court to determine the interpretation of certain policy provisions that include cover for Non-Damage (i.e. no physical damage to property) Business Interruption in relation to losses resulting from the COVID-19 pandemic. 

The FCA has decided to focus on 40 sample policy wordings from 8 insurance companies but this is a broad enough spectrum to include many other policy wordings. The regulator is only seeking to provide clarity for policyholders where the policy wording includes a Non-Damage Business Interruption clause, meaning that for the vast majority of businesses, the outcome of a claim under their policies will be unaffected by the test case. 

The High Court hearing is scheduled to commence 20rd July 2020. All insurers will await the outcome of the High Court test case as this may affect their final claims decisions. We do not yet have confirmation as to when the final outcome will be announced. There is of course the possibility that any party may subsequently appeal the decision to a higher court. Unsurprisingly, the Government will also wait for the outcome of the test case before making any further decisions.

Nevertheless, following the outcome of the test case, we shall continue to lobby government as the outlook for businesses remains cautious for the rest of the year, given the ongoing uncertainty around the speed and sustainability of an immediate economic recovery.

We shall of course keep our clients fully updated with regards to the outcome. You can sign up for regular test case updates on the FCA website by clicking on the following link: www.fca.org.uk/firms/business-interruption-insurance

In the meantime, if we can be of any further assistance, please do not hesitate to contact your Hamilton Leigh client service executive. Alternatively, please click on the following link for regular updates on the FCA test case as well as a range of other subjects: https://hamiltonleigh.com/insights/

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