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The Financial Conduct Authority's business interruption insurance test case judgment

Watch this space as we continue to review the judgment throughout the day.

The High Court has found in favour of the Financial Conduct Authority on the majority of the key issues in its business interruption insurance test case. A host of businesses have been severely disrupted due to the COVID-19 outbreak and many have looked to insurers to cover their business interruption losses. Many insurers disputed the claims, arguing policies were never meant to cover such unprecedented circumstances.

While the Court reached different conclusions in respect of the various sample wordings under consideration, based upon the Court’s findings most disease and ‘hybrid’ clauses, and certain denial of access/public authority clauses, appear likely to respond.  The Court also sided with the FCA on the question of causation as well as their interpretation of ‘trends’ clauses.

The judgment should therefore bring welcome news for a significant number of the thousands of policyholders impacted by COVID-related business interruption losses.

The test case has the potential to affect 370,000 mostly small businesses. The participating insurers can (and are likely to) appeal against the decision – it is anticipated that such appeal will be “fast tracked” to the Supreme Court.

Our team of legal experts on hand reviewing the judgment comment:

The court's decision will be welcomed by policyholders, with whom the court sided on almost all of the key issues. For insurers, who have not allocated reserves for the consequences of a pandemic, the decision is likely to have major financial implications. At this stage it is not yet clear whether the decision will be appealed but that is the likely next stage of the dispute. However, round one emphatically goes to the policyholders.
Court finds that local instances of COVID-19 form indivisible parts of national outbreak; alternatively that all local instances were equal causes of the imposition of national lockdown measures. It is therefore highly artificial to say that because the government’s action in closing businesses or ordering people to stay at home was taken in response to all cases, it could not be regarded as taken in response to any one local instance. 
Court takes comfort in reaching this view from comments made by Secretary of State for Health & Social Care, Matt Hancock on 28 April 2020 that “we are really in this together” and that “the shape of the curve…has been very similar across the whole country.
Court marginalises the decision in Orient-Express Hotels Ltd v Generali, describing it as a “comparatively recent, first instance, decision, which has been the subject of some critical commentary and has not been the subject of any substantial judicial consideration, and does not give a particular meaning to a specific clause which is of relevance here".

Latest update

The practical implications of the FCA's test case judgment for the insurance sector

Sarah Irwin, Solicitor comments on the practical implications of the judgment for the insurance sector. Read the full insight.

The FCA business interruption test case - analysis and future insights

In our latest podcast Ed Lewis, Simon Durkin and Will Healy share their immediate thoughts on the background to the claim, the court’s decision and the likely implication for insurers and policyholders.

For any further insight and advice please contact a member of our team reviewing the judgment.

Ed Lewis

DDI 020 7822 1992

Simon Durkin

DDI 020 7822 1946

Will Heally

DDI 0208 036 6970

Pamela Freeland

DDI 0151 305 8932

Sarah Irwin

DDI 0151 305 8950




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