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On 9 June 2020 the FCA launched High Court proceedings against eight insurers (the Test Case). The FCA is seeking the court’s guidance on the meaning of certain key words and phrases by reference to a representative sample of policy wordings that do not require damage to the insured’s property in the context of COVID-19 business interruption claims. The Test Case relates to policies written in England, Wales and Northern Ireland.
The nature and purpose of the Test Case
- As announced by the FCA, the purpose of the Test Case is to seek to resolve certain key contractual uncertainties and ‘causation’ issues that the FCA intend will provide clarity for policyholders and insurers alike.
- The FCA has made clear that the Test Case will not determine how much is payable under any individual policies which are held by the court to respond. Such issues will still need to be determined with each insurer.
- A trial of the issues in the Test Case concluded on 30 July 2020. During the trial, the FCA put forward policyholders’ arguments on their behalf. The court also heard from lawyers for certain policyholders. The court handed down its judgment on 15 September 2020.
- Following a consequentials hearing on 2 October 2020 (during which the court made various orders consequential upon the judgment), the FCA, an action group on behalf of various policyholders and certain insurer parties were granted "leapfrog" certificates for an appeal directly to the Supreme Court (without the need to first appeal to the Court of Appeal).
- The appeal was heard by the Surpreme Court over 4 days commencing on 16 November 2020 and judgment was handed down on 15 January 2021. A copy of the judgment along with a summary of the findings is available on the FCA website (see details below).
- Following judgment, the Test Case has now concluded and the questions posed by the FCA finally resolved.
- The FCA has advised that the Supreme Court's judgment will now be distilled into a set of declarations and whilst no timeframe has been provided for when these may be issued, they are working with the Court and those insurers involved in the Test Case to finalise them as quickly as possible.
- In addition, the FCA will publish a set of Q&As for policyholders to assist them and their advisers in understanding the Test Case. They will also publish a list of policy types that potentially respond to the COVID-19 pandemic as well as finalising guidance on how to prove the presence of COVID-19.
ERGO will continue to post regular updates on the outcome of the Test Case to this website.
Impact of the Test Case on business interruption claims
On 17 June 2020 the FCA issued guidance for insurers and insurance intermediaries in respect of handling claims and complaints for business interruption policies during the Test Case (the FCA Guidance). Although ERGO is not directly involved in the Test Case, it was required to inform the FCA by 8 July 2020 whether, by reference to its own policies, the outcome on claims generally may be affected by the final resolution of the Test Case or whether the outcome will not be affected.
ERGO has already written to all policyholders who have made business interruption claims where there has been no damage to the insured’s property and where such claims have been declined or remain unresolved as well as policyholders who have made a complaint against ERGO or referred their complaint to the Financial Ombudsman Service following the declinature of a claim by ERGO. In accordance with the FCA Guidance, ERGO has explained whether or not policyholders’ claims or complaints are potentially affected by the final resolution of the Test Case and the implications of that.
In light of the final resolution of the Test Case, ERGO is considering whether claims and complaints from those policyholders that were advised that their claims or complaints are potentially affected by the final resolution of the Test Case are impacted by the Supreme Court's judgment. However, as the FCA has made clear throughout, the Test Case "was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and 'causation' issues to provide clarity for policyholders and insurers". The judgment does not determine how much is payable under individual policies and claims and complaints will still need to be individually considered and adjusted (where appropriate).
As soon as ERGO has concluded its analysis and assessment of the Test Case, it will write to all affected policyholders advising on the status of those claims or complaints in line with the outcome of the Test Case and FCA Guidance.
For further information on the Test Case, you can visit: https://www.fca.org.uk/firms/business-interruption-insurance
You may wish to subscribe for email updates from the FCA by visiting: https://www.fca.org.uk/sign-business-interruption-bi-insurance-email-updates
For further information regarding complaints to the FOS, you can visit: https://www.financial-ombudsman.org.uk/businesses/complaints-deal/complaints/coronavirus-covid-19-information-businesses
15 January 2021
Please note that our London and Birmingham offices are currently working with reduced staffing due to Covid-19 restrictions.
However, all staff are available as normal via email.
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