Transcript

Hi, my name is Niall Guinan and I am an associate in the Insurance and Reinsurance team in Arthur Cox. In this audio briefing, I will be discussing developments in the UK in relation to the contested area of business interruption insurance policies in light of the current pandemic crisis.

The UK Financial Conduct Authority (FCA) has launched a Test Case to resolve contractual uncertainty as to whether losses arising from COVID-19 are covered by business interruption insurance policies containing such wording.

What will the test case be looking at?

The Test Case will focus on the cohort of business interruption policies where it is arguable that they include cover for COVID-19 losses. Since 1 May, the FCA has approached 56 insurers and reviewed over 500 policies. In addition, the FCA received over 1,200 submissions from policyholders and brokers that are in dispute with their insurers over the terms of their policies. Arising out of that, the FCA has now produced a sample list of policy wordings that capture the key issues that are in dispute. These issues include, for example, whether the policy covers government advice to close the business or whether a government order forcing the closure of the business is required or whether the outbreak of an infectious disease must take place within a certain vicinity of the business.

How is it going to work?

On its website, the FCA identifies the eight insurers that have entered into a framework agreement with the FCA and have agreed to be defendants in the Test Case. A further eight insurers are also listed on the website as using at least one of the policy wordings set out in the sample but will not be directly involved in the Test Case. The agreement says that the objective of the case is to achieve the maximum clarity possible for the maximum number of policyholders and to set a legal precedent to resolve “to a substantial degree” the uncertainty that has arisen in relation to business interruption policies in the context of the pandemic. The framework agreement also sets out the detail of the process for the Test Case that the FCA and the eight defendant insurers have agreed: A set of “agreed facts” has been decided between the parties. This includes basic facts such as the dates on which certain government decisions were made. A separate set of “assumed facts” will be presented to the Court to illustrate the potential fact patterns that might arise in relation to the disputed policies.

What are the next steps?

An indicative timeline is included in the framework agreement. Proceedings have now been commenced in the English High Court and a case management conference took place via video link on 16 June. At this conference, an application by the FCA to expedite the case was granted and the case is now listed for 20 July and is estimated to last eight days. Insurers are required to file defences in advance of 23 June with an additional case management hearing taking place after 25 June.

What do insurers and policyholders need to be aware of?

The FCA has stressed that the list of policies and the insurers affected are not exhaustive and, with that in mind, has produced a consultation on draft guidance for insurers and intermediaries who are handling claims or complaints on policies which may be relevant to the dispute during the period of the test case. In addition, the FCA have cautioned against policyholders assuming that their losses are covered simply because their policy wording is included in the sample. They note that the Court may decide that some of the wordings in the sample are responsive to the COVID-19 pandemic and others are not.

The FCA website, www.fca.org.uk has a dedicated webpage providing updates on the progress of the case. You can also sign up for email updates about the case.

Insurers and policyholders should watch this case carefully as it may impact similarly disputed policies in the Irish Courts.

I hope you found this audio briefing helpful. For more information on this issue, please feel free to contact a member of the Arthur Cox Insurance and Reinsurance team or your usual Arthur Cox contact.

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Disclaimer: The contents of this podcast are to assist access to information and do not constitute legal or other advice. Specific advice should be sought in relation to specific cases. If you would like more information on this topic, please contact a member of our team or your usual Arthur Cox contact.