Leading insurance organisations respond to FCA BI test case judgement


The British Insurance Brokers’ Association statement:

“Covid-19 and the application of insurance in relation to Business Interruption insurance created a complex situation requiring legal consideration of the many different issues of proximate causation and wording interpretations. That is why, from the outset, we welcomed the FCA intervention in bringing this test case and the ultimate clarity the judgement will bring (once any appeal process is complete).

We recognise how important this case is for customers and the insurance industry alike and we will study the judgement in detail over the coming days while waiting to see if any of the parties’ appeal.

Meanwhile, the outcomes do not prevent individual policyholders from pursuing issues through the courts, or eligible complainants from taking a complaint to the Financial Ombudsman Service.

Looking forwards, it is important that we have a solution so that customers can be protected in the event of another pandemic. It Is our belief that that a public-private partnership would be the best means.

Already in the UK we have been looking at a model called Pandemic Re and many other nations are also considering these types of shared risk models.

Pool Re, which is the UK’s answer to terrorism risk, provides a working example of how such a partnership could work in practice.”

Huw Evans, Director-General, Association of British Insurers:

“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 judgment 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 judgment 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 judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”


“Lloyd’s welcomes the FCA’s test case judgment 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 judgment 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 judgment, 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.”

Christopher Croft, CEO of LIIBA: 

"Clients deserve clarity, and the fact that this case had to take place at all is a rebuke to our industry and the often obscure language we use. Customers deserve to understand exactly what it is they are getting in language they recognise.

The swift action taken by the FCA to bring clarity after the fact is to be commended. Many other countries are looking on with interest as their BI cases grind slowly through their legal systems.

The fact that the court found in favour of the policyholders hopefully brings this action to a close.  The industry's reputation has been damaged by the debate over exactly what is or is not insured, and we need to think hard about how we redress that and introduce absolute clarity into the product our customers buy. This will include challenging the principles at the heart of these cases -- principles which insurers have held dear but which we have seen make no sense to the general public."

Dave Matcham, CEO of the International Underwriting Association:

“The impact of the Covid-19 crisis on the London company market has been widespread and profound. IUA members have supported their clients, making claims payments across a range of business classes, but most notably on contingency and business interruption policies.

Where there have been coverage disputes, companies have cooperated fully with the FCA in its legal test case to bring about a resolution as speedily as possible. The court decision provides a degree of certainty for both sides.

The economic losses brought about by Covid-19 are unprecedented and have raised important questions for risk managers. Insures are now working with clients and government to ensure that effective preparations are in place for any future pandemics.”

John Ludlow, CEO of Airmic:

“On behalf of our members, we are pleased with the High Court ruling in favour of the Financial Conduct Authority and insurance buyers on the test case for business interruption (BI) claims. 2020 has already been a tough year for business across most sectors, due to Covid, which has been exacerbated by the harsh insurance market. We think this ruling is to the benefit of businesses, risk professionals and insurance buyers, but importantly should serve to smooth a period of uncertainty faced by policyholders, and especially for those in the SME space.”

Mohammad Khan, UK General Insurance Leader at PwC UK:

“Today’s ruling will have a significant impact on approximately 370,000 policyholders covered directly or indirectly by the policy wordings. The Court has found in favour of policyholders in the majority of the issues under scrutiny, it remains to be seen whether there will be appeals. However, if the insurers appeal, this may mean there will be a further delay for impacted policyholders and we would not expect a decision before January 2021.”

Insurers with affected portfolios should have a clear view of what policies are affected by each clause by now. For those not defending the test case, they should also have a mapping of their own clauses to the ‘equivalent’ clauses subject to the Test case.

The judgement presents some nuances of interpretation which means further analysis to identify those policies where the Court found in favour of insurers and where claims will not be paid up. These relate to a potential narrow definition of prevention of access and inability to use premises. This means that the same type of business might find itself covered or not depending on whether it was still selling or whether it was mandated to close by the government rulings rather than its advice.

Such mapping is essential to enable insurers to communicate with policyholders within seven days about the status of their claims and complaints as required by the regulator. There are 370,000 affected policyholders, so acting fast is an operational challenge and insurers need to consider their ability to handle large volumes of claims and complaints promptly and accurately.

The judgement might also lead to more claims being made in the coming weeks and, in the longer term, these rulings will have an impact on how insurance policies are worded and potentially sold.

There will be a renewed focus on policy wording standardisation which may impact the freedom of brokers to set slightly different wordings for their clients. Insurers and brokers will need to consider the use of technology to ensure that different wordings are provided to customers to meet their insurance needs whilst also ensuring they meet the requirements arising from the ruling today and through the appeals process.

It is worth remembering that although we have increased clarity on business interruption claims, the Covid-19 impact on insurance businesses is far broader. Although today will provide some certainty as to how much insurers may pay out for these claims, the Covid-19 impact on other lines of business in insurance is still significant and will impact insurers' results.”