FCA Business Interruption Test Case Update

Wed Jul 22 2020

Some members will have been following with interest the FCA test case on business interruption insurance. The case opening in the High Court in England on Monday 20 July 2020 and is scheduled to run for eight days. In opening arguments, counsel for the FCA has said that insurers had offered protection to businesses against forced closure from a notifiable disease outbreak but had now refused cover, effectively on the grounds it was “a really bad notifiable disease.”

The FCA has brought its test case against eight insurers over liability in 17 business interruption policy wordings. Counsel for the FCA said on Monday the scope of the action was far wider, potentially affecting 370,000 policyholders with 700 types of policy wordings employed by 60 insurers.

In opening arguments, the FCA has questioned why many insurers had not restricted cover to a list of defined diseases if they didn’t intend to insure against new and emerging diseases.

The FCA barrister has stated in the opening statement that insurers price [policies] on the basis that the very nasty diseases will never happen.  Insurers are probably feeling like they’ve made a mistake now with these policies.” But they’re not to be protected from the possibility that a cataclysmic event could happen. That’s just bad luck being an insurer.”

Many of the policy wordings say that insurers will pay out if a business is forced to close as a result of an outbreak of an infectious disease, within a defined vicinity of between 1 mile to 25 miles. Policyholder groups have said it should be easy to prove that there was a case within that vicinity based on hospital records.

Insurers have said though that even if there wasn’t a case within that scope, the insured business would have been compelled to close because of a national outbreak. Counsel for the FCA said that if every insurer took the same stance, nothing would be paid out anywhere in the U.K.

The case is The Financial Conduct Authority v. Arch Insurance and others, case number FL-2020-000018, in the High Court of Justice of England and Wales.  The eight insurers involved are Arch Insurance (UK), Argenta Syndicate Management Limited, Ecclesiastical Insurance Office plc, MS Amlin Underwriting Limited, Hiscox Insurance Company Limited, QBE UK Limited, RSA Insurance PLC and Zurich Insurance PLC.  The Hiscox Action Group (HAG) has joined the trial after being permitted to intervene. Also intervening in the test case is the Hospitality Insurance Group Action.

An agreed list of issues Agreed List of Issues and Common Ground, which may be found on the FCA website, summarises what is and is not in dispute in the action

A revised “assumed facts” document has also been released. It contains factual scenarios which will be used by some parties to illustrate their views as to how coverage is triggered. https://www.fca.org.uk/publication/corporate/bi-insurance-test-case-assumed-facts.pdf

The pleadings in the action, along with the policywordings in issue, may be found on the FCA website https://www.fca.org.uk/firms/business-interruption-insurance

Those who wish to view the trial live can do so at fl-2020-000018.sparq.me.uk.