FCA Test Case Statement

The Financial Conduct Authority (FCA) has sought legal clarity on the response of some business interruption insurance policies to COVID-19 by bringing a test case to the High Court. Judgement was handed down on 15th September 2020.

Business interruption cover helps to protect businesses against loss of income as a result of not being able to operate fully after foreseeable events, such as floods, fires, malicious damage or storms.

Although it’s highly unlikely that a pandemic would intentionally be included in business interruption cover, COVID-19 has highlighted uncertainty around the validity of some insurers’ policy wording, resulting in the test case which considered 21 sample wordings from eight insurers.

The Court reached different conclusions in respect of each policy wording but found in favour of the FCA (who advanced the claim for policyholders) on some of the key issues meaning that some policyholders will now have their claims paid.

The judgement is complex and it will take time for those parties involved in the case to understand what it means and whether to appeal.  The judgement will also have implications across the wider insurance and reinsurance markets, leading to amendments to policy wordings.

Cornish Mutual is not a party to the test case and the key points for determination by the Court are not relevant to our policies. The judgement will therefore not have a bearing for any existing or potential claims made by our Members for any COVID-19 related business interruption losses.

Looking to the future, our and other insurers’ attention will quickly turn to how to protect against another pandemic.  However, the problem cannot be solved by the insurance industry alone. It is essential for the Government and the insurance industry to work together and provide a way for businesses to protect themselves against future pandemics.