The ruling in the FCA test case on 21 business interruption insurance policies could have implications for 60 different insurers and 370,000 policyholders

The ruling is legally binding on all involved, but many expect the defendants to appeal it (Credit: PxHere)

The High Court has ruled mostly in favour of the FCA and the businesses its legal team represented in the landmark business interruption (BI) test case conducted in July.

The ruling clarified the Covid-19 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.

Many insurers attempted to use the defence that because the virus was not the sole cause of loss, and that the government and public response to it would have led to the same disruption regardless of localised outbreaks, their indemnity obligations should be reduced.

But the High Court’s rejection of this argument, in favour of a view that all three factors are a single cause of the same loss, means that insurers could now be on the hook to pay out sums to return businesses to the position they would have been in had Covid-19 not caused a pandemic.

FCA interim chief executive Christopher Woolard said: “We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.

“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 judgment is a significant step in resolving the uncertainty being faced by policyholders.

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

Law firm Mishcon De Reya – which represented the only two collectives in the case, the Hiscox Action Group (HAG) and the Hospital Insurance Group Action (HIGA) – called the outcome a “resounding victory” for the policyholders involved, but added that defendants in the case indicated that an appeal from them is likely.

On behalf of HAG, the legal representative has written to Hiscox requesting interim payments for its clients.

According to the FCA, while the test case included 21 different types of policy wording from eight insurers, 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by today’s judgment.

It made clear, however, that not all of the eight insurers within the test case were liable regarding all 21 of these wordings, and that it expects each insurer from the case to be in touch with policyholders with affected claims in the next seven days

While this means insurers could face the prospect of huge payouts if they do appeal the High Court decision unsuccessfully, the total amount paid to businesses will differ based on the indemnity limit of each contract.


ABI response to FCA test case outcome

Despite today’s ruling being considered largely in favour of the policyholders involved in the test case, the Association of British Insurers said it “divides evenly” on the main issues.

ABI director general Huw Evans added: “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 judgement 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 judgement, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.”