Home News FCA insurance test case: What Covid-19 ruling means for you?

FCA insurance test case: What Covid-19 ruling means for you?

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The Financial Conduct Authority’s business interruption insurance test case was delivered on Tuesday, September 15. The case will have a huge impact on the business interruption insurance market which is crucial in light of the ongoing coronavirus pandemic which has decimated the UK economy. But what exactly does the ruling mean for you?

Insurers struggling to meet demand amid the coronavirus crisis awaited the London court ruling on a test case involving 370,000 policyholders on Tuesday. 

The FCA brought the case to court after a number of small businesses struggled to get compensation form insurers for losses sustained amid the COVID-19 lockdown.

Bloomberg Intelligence analyst Sarah Jane Mahmud said: “Insurers and regulators around the world will be looking at this case.”

The regulator “has never taken a step like this; it’s completely unprecedented.”

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The FCA brought the case following “widespread concern” over “the lack of clarity and certainty” for businesses seeking to cover substantial losses incurred by during the coronavirus crisis.

The regulator said the value of the policies affected was around £1.2 billion.

The FCA selected a representative sample of 17 policy wordings used by 16 insurers, all of which were considered during the eight day hearing in July.

A witness statement by the FCA’s director of general insurance and conduct specialists Matthew Brewis said that, up to early May, about 8,500 claims had policy wordings likely to be affected by the test case, with a value of approximately £1.2 billion.

What was the court ruling?

The High Court today ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic are entitled to be compensated by the insurers.

This ruling is subject to the limits of the policy but this compensation should return them to the position they would have been in had the pandemic never happened.

Speaking about the landmark ruling, interim FCA chief executive Christopher Woolard said: “We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues.

“Today’s judgement is a significant step in resolving the uncertainty being faced by policyholders.

“We are grateful to the court for delivering the judgement quickly and the speed with which it was reached reflects well on all parties.”

Paul Lewis, partner at Herbert Smith Freehills, the FCA’s law firm, said: “The decision should bring welcome news to a significant number of policyholders who will need to read the judgment carefully and see how the principles laid down by the court apply to their policy wording.”

What does the court ruling mean for you?

The judgement decided on September 15 is complex and deals with many issues. 

Essentialy to establish liability under the representative sample of policy wordings, the FCA argued for policyholders that the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings provide cover in the circumstances of the Covid-19 pandemic, and that the trigger for cover caused policyholders’ losses.

The judgment outlines that most, but not all, of the disease clauses in the sample provide cover. 

It also says that certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.

The test case also clarified the coronavirus pandemic and the Government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover. 



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