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COVID-19 and Claiming on Your Business Interruption Insurance

DATED: 29 JUNE 2020

A Financial Conduct Authority (FCA) test case seeks to provide clarification for Business Interruption insurance claims. Head of Dispute Resolution, David Mallinson explains more.

As a result of the wide ranging Government controls imposed in the wake of the COVID-19 pandemic there has been extensive disruption and a growing number of business closures. Many small and medium sixed enterprises (SME’s) have sustained significant financial losses during this period leading to a large number of claims being made under business interruption (BI) insurance policies. Whilst many claims have been met there are a substantial number of unresolved or rejected claims founded upon the BI insurer’s refusal to accept COVID-19 related claims based on their interpretation of the policy wording.

Financial Conduct Authority (FCA) test case

Widespread collective and individual dissatisfaction with this response resulted in the Financial Conduct Authority (FCA) announcing last month that it intended to pursue a test case in the High Court in order to clarify the meaning and effect of the wording of a number of selected BI insurance policies. The FCA’s primary concern being to resolve the continuing uncertainty over BI policy cover and to promote, as far as possible, the fair and equal treatment of policyholders by insurers and their intermediaries.

The FCA claim was commenced in the High Court on the 9th June and the FCA’s website contains a significant amount of reference material, including the lengthy particulars of claim and details of the various “test” policies which are to be considered. The FCA’s application for the case to be expedited was granted at the first Case Management Conference (CMC) on the 16th June, with the second CMC now scheduled to take place on the 26th June at which the Court is expected to address any outstanding procedural issues.

In what seems, at least in a “normal” litigation context, to be remarkably swift progression of the claim the 8 day final hearing is scheduled to take place on the 20th to 23rd and the 27th to the 30th July before Lord Justice Flaux and Mr Justice Butcher. The intention is for the hearings to be live-streamed via a link which will be accessible via the FCA website just before commencement of the hearings. In addition the FCA has indicated its intention to invite policyholders and other “stakeholders” to provide further comments prior to the 23rd June, by which time the “nominated” insurer parties to the FCA’s test case are required to file their defences.

FCA guidance

Helpfully, for those currently struggling with progressing their claims / complaints, the FCA has published its final version of its ‘guidance’ which sets out the FCA’s expectations of insurers and related intermediaries handling BI claims during the currency of the test case. A draft version of the guidance had previously been published for consultation on the 1st June and the final guidance provides a “feedback statement” in which the reasons for various amendments to the guidance to address specific concerns raised during the process is also available.

A total of 16 insurers and relevant BI policies are listed by the FCA with 8 named insurers being invited and agreeing to participate as the named defendants to the test case.

Dispute Resolution team

BI policy claims

The final decision in the FCA test case will be legally binding on not only those insurers who are direct parties to the FCA proceedings but perhaps just as importantly it will also provide (hopefully) clear guidance on the interpretation of similar BI policy wordings and claims outside of that group of insurers. It is highly likely that all insurers and intermediaries (primarily claims handlers) dealing with BI policy claims will be required to act in a manner which is consistent with the final judgment of the Court.

The Financial Ombudsman Service and the FCA have already given clear notice that they will take account of the terms of the judgment in assessing BI policy claims and complaints handling. Furthermore the FCA has also confirmed its expectation that once the final judgment is available insurers should apply the terms of that judgment in undertaking and where necessary re-assessing all outstanding and / or previously rejected claims in the light of the Court’s decision. Having said that the FCA has also made it clear that it does not intend to apply the test case decision on a retrospective basis but it certainly will form the ‘spirit’ against which all outstanding claims are to be assessed.

Insurers with BI policies are required to undertake a review which is to be completed by the 8th July of their BI policies as to whether decisions on claims made in respect of any individual policy might be affected by the decision in the test case. The results of that review will allow the FCA to publish details of the individual insurer’s responses and the details of those BI policies notified together with the individual insurer’s conclusions following that review. All insurers who are potentially affected are required to keep policyholders with relevant BI policies up-dated about the progress of the test case and the potential which the judgment may have for determining claims under their policies. That information should be made available on insurer websites and other general forms of notification and is expected to be published shortly after the 17th June.

What will the insurers' reactions be?

It will be fascinating to see what arguments the named insurers adopt in their response to the FCA’s claim. Hiscox have already indicated their intention to seek to argue that businesses would face significant financial/ economic hardship with or without lockdown measures, based on an analysis of the economic impact of the COVID-19 pandemic in specifically Sweden, where similar restrictions were not imposed. It is also understood that Zurich is considering submitting evidence as to the availability of specific pandemic insurance cover. [Up-date : the detailed defences are now available for inspection on the FCA website together with the Cased Management Order made on the 16th June].

An economic lifeline?

Not everyone is leaving their decisions to the outcome of the FCA case however. Given the widespread significance of BI claims the business pressure group, Hiscox Action Group, has decided not to wait for the outcome of the test case but instead to serve a £40 million arbitration claim on the insurer. It is clear that there are very wide ranging potential ramifications for small to medium sized businesses, many of whom will be substantially disadvantaged by the refusal of their BI claims, and the FCA test case and the wider issues involved in the assessment of BI policies arising from COVID-19 will be viewed by many as a potentially much needed economic lifeline in the coming weeks.

If you are in dispute and need legal advice on this or another business matter, please contact David Mallinson to discuss your situation.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.


David Mallinson

Head of Department
Dispute Resolution


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Head of Department
Dispute Resolution

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