CII produces overview of BI test case ahead of next week’s judgement
On 1 May 2020 the Financial Conduct Authority (FCA) issued a statement of intention to seek a court declaration to resolve contractual uncertainty arising out of business interruption claims arising out of COVID-19. The FCA sought initial information about policy wordings from 56 UK insurers.
Subsequently, on 8 May the FCA issued proposed guidance for handling claims and complaints, on 15 May the FCA invited policyholders to submit details of disputes.
The FCA has imposed certain communication requirements on insures, in particular:
- Insurers must publish relevant details of the test case and keep policyholders updated
- By 15 July insurers were required to write to all policyholders with outstanding claims or complaints with details of the test case and its impacts
- New claimants must receive test case information
- Policyholders must be updated within a week of significant developments
The eight day trial of the FCA's business interruption test case commenced on 20 July 2020, before two judges, Mr Justice Butcher and Lord Justice Flaux.
Submissions were made by the FCA, the intervenors Hospitality Insurance Group Action and Hiscox Action Group, and the eight Defendants who had agreed to be part of the test case:
- Arch Insurance (UK) Ltd
- Argenta Syndicate Management Ltd
- Ecclesiastical Insurance Office Plc
- MS Amlin Underwriting Ltd
- Hiscox Insurance Company Ltd
- QBE UK Ltd
- Royal & Sun Alliance Insurance Plc
- Zurich Insurance Plc
The eight defendants were selected because of the wordings the FCA wished to focus on.
The purpose of the proceedings was to resolve uncertainty surrounding the extent to which (if at all) business interruption policies may respond to loss incurred as a result of the coronavirus pandemic.
Key issues include:
Government action clauses
- What do terms such as "prevention", "hindrance" and "inability" mean?
- Whose action may trigger cover: central government/police/local/civil/military authority?
- How do vicinity requirements operate in practice?
- The relationship with disease clauses
- How do radius requirements apply in practice?
- Which premises are "directly subject" to an incident ?
- The effect and operation of causation language: is every single case of disease causative? Need a proximate cause be a ‘but for’ cause?
- The operation of exclusions for "epidemic and disease"
- The burden of proof
- The extent to which (if at all) they apply to non-damage extensions
- Which "trends or circumstances" may be taken into account?
It is important to note that the scope of the UK test case is limited; only non-damage business interruption is under scrutiny, and there are just 17 policy wordings under consideration – although these are thought to impact approximately 370,000 policies.
In addition to the eight insurers participated in the action, two intervenors were given permission to take part: the Hospitality Insurance Group Action (HIGA), which represents the interests of hotels, restaurants, bars, pubs and nightclubs, and the Hiscox Action Group (HAG). The latter has now also commenced arbitration proceedings in relation to coronavirus business interruption losses on behalf of approximately 700 claimants.
The FCA published an announcement to confirm that the court has stated that judgment in the FCA test case will be handed down at 10:30am on Tuesday 15 September 2020.
The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings. It will also provide guidance for the interpretation of similar policy wordings and claims that can be taken into account in other court cases, including in Scotland and Northern Ireland, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.
Given the significance of the case, many commentators anticipate that it will be appealed, whatever the judgment, and the parties have already agreed that any such appeal will be dealt with on an expedited basis, with the possibility of being "leapfrogged" to the Supreme Court.
Authored by CII
The Chartered Insurance Institute (CII), the leading professional body for the global financial services profession, exists to promote higher standards of integrity, technical competence and business capability. With over 115,000 members in more than 150 countries, the CII is the world's largest professional body dedicated to insurance and financial services.
Our membership covers all disciplines within the insurance industry (claims, broking, underwriting), those working in the life and pensions sector, the mortgage advice market and financial advisers (under the Personal Finance Society brand).
Our Royal Charter requires us "to secure and justify the confidence of the public" in our members and in the insurance and financial services sector.
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