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The FCA Business Interruption Insurance Test Case - what does this mean for policyholders?

View profile for Emily Summer
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The Covid-19 pandemic, and the restrictions implemented to tackle its spread, has had a significant impact on the economy. The effect of the governments’ measures has led to significant levels of financial loss for businesses across various sectors, especially for those small and medium-sized enterprises (SMEs) operating in the leisure and hospitality industries who were prevented from trading almost overnight.

As a result, a large number of businesses have sought to claim on their commercial insurance policies for losses arising due to business interruption (BI) caused by the Covid-19 pandemic restrictions i.e. lockdown. However, it soon became apparent that businesses were struggling to receive a positive response to those claims from their insurers who were repudiating cover for BI losses based on their interpretation of the wording of their policies.

The Test Case - The Financial Conduct Authority v Arch and Others [2020] EWHC 2448 (Comm)

The Financial Conduct Authority (“FCA”) announced in May 2020 that it intended to bring a test case in the High Court of England and Wales to seek clarity regarding the meaning and effect of the wording of a number of selected BI insurance policies. The principal aim of the test case was to resolve the uncertainty over BI insurance cover and to ensure that policyholders are treated fairly by insurers and insurance intermediaries.

On 15 September 2020, the High Court of England and Wales confirmed that it agreed with the majority of the arguments advanced by the FCA on behalf of policyholders and provided clarification of its interpretation of the wording used and the extent of cover that, based on the Court’s view, a policy holder could expect.

Christopher Woolard, interim chief executive of the FCA, said the ruling removed "a large number" of roadblocks to successful claims.

While acceptance of a claim will still be governed by the precise wording of the policy, the Court’s finding will mean that many thousands of claims that had initially been rejected by insurers should now be reconsidered, with the potential outcome being the receipt of some very welcome funds by policy holders.

While relevant policy holders should be contacted direct by their insurer, it is certainly advisable for all potentially affected businesses, regardless of whether they have yet made a claim for BI, to promptly review the terms of their policies.

For more information, get in touch with Emily Summer on 01792 529 610 or email