FCA to Pursue High Court Test Case on Business Interruption Insurance Policies to Provide Clarity During Pandemic

Morgan Lewis

The UK Financial Conduct Authority (FCA) on May 15 invited policyholders of business interruption (BI) insurance that have been affected by the coronavirus (COVID-19) pandemic, and have had a claim under their insurance policy rejected by their insurer, to get in touch so that their arguments may be taken into account as part of the FCA’s plan to seek the court’s views on certain policy wordings by commencing a test case in the English High Court.

In view of the FCA’s intention to obtain such declaratory relief as soon as possible through an expedited court process, the FCA has requested policyholder arguments by May 20, 2020[1]

The consultation with policyholders forms part of the FCA’s plan to seek legal clarity on BI insurance policy wording in light of the COVID-19 pandemic, which it sees as advancing its consumer protection and market integrity objectives. In its update of May 15, the FCA stated that, given the widespread disruption and business closures caused by the pandemic, many customers were making claims under their BI insurance policies, but that there had been “widespread concern about the lack of clarity and certainty for some customers making these claims, and the basis on which some firms are making decisions in relation to claims.” [2]

The FCA acknowledged that there were some “genuine doubts over the appropriate interpretation of the wording in some cases,” which had led to uncertainty and disputes, and believed that the current COVID-19 emergency required the uncertainty to be resolved as quickly as possible.[3] The FCA’s objective appears to be in line with the government’s desire to ensure that insurance policies respond to the pandemic, as reflected in the speech made by UK Chancellor Rishi Sunak on March 17, where he stated that “for those businesses which do have a policy that covers pandemics, the government’s action is sufficient and will allow businesses to make an insurance claim against their policy.”[4]

As to what steps it had already taken in furtherance of its objective, the FCA said that it had outlined its expectations of insurance firms on March 19, had written to all chief executives of insurance firms on April 15, setting out its expectations with respect to the settlement of BI insurance claims, and, on May 1, had issued a statement indicating its intention to obtain court declarations “aimed at resolving the contractual uncertainty around the validity of many BI claims” more quickly and at lower cost to policyholders.[5]

On May 1, the FCA had also asked insurance companies for information on their BI policies and wordings and their intentions and decisions in relation to claims on these policies by May 15, so that it could use this information to consider which policies it would seek to achieve a declaratory judgment on through the courts. In its May 15 statement, the FCA confirmed that it was still reviewing the extensive material that had been provided by insurers and had not yet decided which policy wordings or firms would be included in the test case. The FCA will also use any arguments, policies and fact patterns put forward by policyholders in response to its invitation to inform the sample of policy wordings and fact patterns to be used in the court proceedings.

According to the FCA, the High Court test case will seek to “resolve some key contractual uncertainties [in order] to provide clarity for policyholders and insurers” and will involve claims which have been rejected by insurers and where the parties have reached an impasse. However, the FCA clarified that the test case would not prevent parties complaining to the Financial Ombudsman Service or from pursuing their own disputes through negotiated settlement, arbitration, or court proceedings, but expected the outcome of the test case to provide persuasive guidance for the interpretation of similar policy wordings and claims.

Although the FCA’s announcement did not include a timetable for the planned test case, it made it clear that proceedings would be launched as soon as possible and that the court process would be expedited. The FCA also indicated that it expected to make the court pleadings public thereby making them accessible to third parties.


[1] Visit the FCA website for more on the FCA’s request for policyholder arguments.

[2] Id.

[3] Id.

[5] Visit the FCA website for more on the FCA’s statements.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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