In May 2020 we reported that the UK’s Financial Conduct Authority (FCA) had decided to bring a test case to resolve uncertainty in the interpretation of business interruption policies in the context of the COVID-19 pandemic. A consultation process subsequently took place with policyholders to identify the issues requiring urgent resolution and the questions for determination by the English court.
The FCA filed its claim at court on 9 June 2020, formally commencing the legal process under which the court will consider sample policy wordings and fact patterns, including a selection of the reasons given by insurers for refusal to provide an indemnity under business interruption insurance policies.
The statements of case (pleadings) and supporting documentation have been made publicly available on the FCA website and reveal some important points regarding the timing of the process and the key policy wording battlegrounds on which the FCA is seeking legal clarification.
The scope of the case covers 19 sets of policy wording offered across eight insurance companies and managing agents of Lloyd’s syndicates which provide cover in principle for “standalone” business interruption losses (i.e. without the need to first establish proof of physical damage).
The first case management conference (CMC) took place on 16 June 2020 and the insurers’ defences are due by 24 June 2020. A second CMC is then scheduled for 26 June. Read on below for more detail and stay tuned for further updates regarding this important test case.
Expedited Proceedings - The Need for Speed
At the CMC held on 16 June 2020, the FCA sought court approval to treat the proceedings as a test case under the Financial Markets Test Case Scheme (the Scheme). The Scheme allows an interested party, like the FCA, to bring a costs-neutral test case on issues of general public importance that require resolution. Cases brought under the Scheme will be determined by a specialist panel comprising two Financial List Judges and a Justice of the Court of Appeal, thereby giving greater weight to the decision. The court approved the application to treat the proceedings as a test case under the Scheme.
At the CMC, the FCA also sought court approval for significant expedition of the test case process. The court approved an expedited timetable, and an eight-day trial will commence on 20 July 2020 with two justices (Lord Justice Flaux and Mr Justice Butcher).
On any analysis, it is an extremely rapid process given the volume of issues and the scope of the policy wordings concerned. However, the FCA justified expedition on the basis that the pandemic and lockdown has severely impacted small and medium-sized enterprises (SMEs)1 and that those who may benefit from business interruption cover require urgent clarification of policy terms in order to resume business once the government lifts the lockdown. Figures relied on by the FCA in evidence suggest 650,000 jobs may be affected by coverage issues.