FCA Test Case - Update

• Published date: 05 October 2020
• Subject Matter: Insurance, Coronavirus (COVID-19), Insurance Laws and Products, Insurance Claims
• Law Firm: Beale & Co
• Author: Stephen Reilly

As a firm, we have provided regular updates on the FCA Business Interruption (BI) test case - you can link to our published articles here.

• Proceedings were brought by the FCA as regulator of BI insurers to resolve issues regarding the scope of BI policy coverage and causation. The FCA was supported in the litigation by two action groups - Hiscox Action Group and Hospitality Insurance Group Action, who both presented arguments on behalf of policyholders in addition to those presented by the FCA The eight Defendants in the test case were
  • 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 policyholders concerned are mostly small/medium sized businesses. 21 sample policy wordings were considered in the proceedings. Ultimately, however, the findings in the test case could affect up to 370,000 policyholders across 60 different insurers.
• The court considered a range of different BI policy wordings with various specific non-damage BI insurance extensions, the majority of which were either
  1. Disease wordings, providing cover for losses following/arising from/as a result of the occurrence of a notifiable disease within a specified radius (e.g. within 25 miles/1 mile/the "vicinity" of the premises/insured location); or
  2. Prevention of access wordings providing cover for loss arising from the prevention/denial/hindrance of access to the property, due to actions/advice/restrictions of/imposed by order of a government/local authority/police/other body.

The Disease Extensions

• The Insurers sought to argue that most policyholders' losses were actually caused by the wider impact of COVID, not any issues local to the policyholder or its business premises, as required by their policies. Insurers contended that the policies were clearly worded to provide cover for outbreaks within a specified distance - 25 miles, 1 mile, the "vicinity" of the premises or the insured location.
• The Court agreed with the FCA's contrary position that local outbreaks form indivisible parts of the notifiable disease - the outbreak of Covid 19 within the UK was the "occurrence". As such, cover should not be limited to outbreaks wholly within the relevant -limited - policy area. Cases within the policy area are not distinguishable from cases outside as the effects of both on the business are the same.
• The Court felt that to...