Business Interruption Insurance – The Financial Conduct Authority’s Challenge

15 Jun

We previously provided a note on Business Interruption Insurance and the issues affecting policyholders in light of the Covid-19 pandemic. Amongst other things, we reported that the FCA had been preparing a test case to provide answers to some of the key insurance coverage issues raised by insurers.

Last week a claim was issued at the High Court of Justice seeking declaratory relief with respect to numerous BII policy wordings. The key documents provided to the Court such as the Claim form and Particulars of Claim, setting out the FCA’s case have been published on the FCA website a link to which can be found here.

Key aspects of the Litigation

The Particulars of Claim run to 184 pages and have been issued against 8 different insurance giants including Hiscox, Royal & Sun Alliance, QBE and Zurich to name but a few.

It is noted within the Court documents that claims are being rejected by insurers under BII policies as the insurers do not believe its policies cover the COVID-19 pandemic. Many of those customers having their claims declined do not agree and the FCA are seeking declarations from the Court in the hope of resolving the contractual uncertainty. Six of the common grounds for refusal given by insurers to its policyholders are set out within the Particulars of Claim and it is noted therein that the FCA disputes each and every declinature reason stated. The FCA have asked the Court to provide specific and comprehensive guidance regarding COVID-19 and its classification, reach and meaning in the context of certain BII policies all which are set out within the schedules to the Particulars of Claim.

Further and helpfully the FCA have provided a ‘Questions for determination’ document, also annexed to the Particulars which pulls together the questions the Court is likely to be asked to determine as part of the litigation, although these will no doubt develop further before the final hearing. It will be important to keep a close eye on this as the scope of the case is unlikely to be determinative for all policyholders. Assuming the claim has been properly reported, some policyholders will be able to await the outcome. Others may wish or need to be more proactive in challenging the insurer.

Next steps in the Litigation

The Defences from the various insurers are expected by 23 June 2020 according to the FCA website but before those are received an interim hearing/Case Management Conference (CMC) is expected to take place on 16 June 2020 for the Court to give directions. Notably the FCA has made an application under the Financial Markets Test Case Scheme for the case to be expedited (a copy of which can also be found on its website). It is anticipated that this will be considered during the CMC and if granted the final Hearing is expected to take place before the end of July.

Such an expedited timetable is unusual in insurance disputes but it underlines the critical importance to many businesses across multiple sectors. It is hoped that the courts will give guidance that provides certainty and enables many policyholders to unlock funds to weather the storm.

In the meantime, first and foremost we recommend that all policyholders who believe they may have a valid claim to ensure they discuss matters with their broker and submit a claim to ensure all policy conditions have been met. If policyholders or brokers are uncertain regarding next steps or how (and when) to challenge their insurer, we would encourage them to contact us for a no-obligation chat about practical considerations pending the forthcoming test case.

Loney Stewart Holland LLP is a specialist dispute resolution practice headquartered in Bristol with a base in London. Please visit our website at www.loneystewartholland.co.uk for further details on our team and the services we offer.