COVID-19 - FCA to resolve uncertainty around insurance claims with test case
There has been widespread uncertainty as to whether non-damage business interruption (BI) insurance policies cover losses sustained as a result of COVID-19. On 9 June 2020, the Financial Conduct Authority (FCA) issued a test case in the High Court in relation to these policies. Due to forced closure in response to COVID 19, many businesses have suffered loss and will look to their BI insurance policies for pay out.
The FCA test case
The test case is aimed at obtaining a court declaration to resolve uncertainty over coverage, without further delay to the affected SMEs, and will be pursued from a policy holder friendly perspective. The declaration will be binding on the insurers that are party to the case and is expected to offer guidance on the interpretation of other BI policies not included in the test case.
The FCA has published a representative sample of 17 policy wordings, which demonstrate the arguable coverage issues in the case. The names of the insurer defendants and the other underlying documents in the case have been made publicly available. The claim was filed on 9 June 2020 and the FCA anticipates that the case will be before the Court in a five to ten day hearing commencing in the second half of July, with a case management conference expected to take place on 16 June 2020.
The FCA invited policyholders, insurers and legal advisors to comment on the documents which will form the basis of the test case, including the proposed representative sample of policy wordings, assumed facts, issues matrix and questions for determination. We, alongside other law firms and policyholders, fed back on those documents prior to the deadline of 5 June 2020.
Clarity for policy holders and insurers
The FCA has published guidance on actual or potential claims relating to non-damage BI losses resulting from the coronavirus pandemic. It revolves around the steps insurers should take to:
- identify the potential implications of the test case on their decisions as to policy coverage
- keep policyholders updated about the test case
- treat policyholders fairly when the test case is resolved.
In practice, insurers must review all existing and new claims relating to BI policies to determine if these may be impacted by the outcome of the test case. This must be completed within 3 weeks of the guidance coming into force. All claims and complaints which were rejected before the resolution of the test case, except those referred to the Financial Ombudsman Service, should be reassessed once the declaration has been given in the test case.
Policyholders will be notified whether their claim is subject to the test case by their insurer. They must also be kept updated as to the implications of the test case, although it is likely that insurers will comply with this requirement through issuing press releases on their respective websites.
Where a relevant BI claim is already the subject of a dispute resolution processes, insurers may continue to offer to settle test case claims, but they should explain to any affected policyholder the implications of the test case, how it may affect the insurer's decision, and the implications for the policyholder of accepting or rejecting the offer.
Where a claim or complaint is not affected by the test case, insurers must apply the FCA rules. Namely, they should handle any non-affected part promptly and pay out any assessed settlement, while explaining to the policyholder the treatment of test case and non-test case elements if this is relevant.
This case is a great example of the FCA being proactive and perusing litigation in the public interest. The test case has followed an ambitious timetable which looks set to continue, so that the declaration can be obtained quickly. We are continuing actively to engage with the FCA process and are advising a number of clients on a range of insurance issues in light of the pandemic. However, the test case does not preclude policyholders from pursuing individual actions on which we are well placed to advise, and we encourage affected parties with disputes or queries to get in touch.