FCA orders test case on BI insurance wording

A court case will take place at the end of July to test the validity of business interruption (BI) coronavirus claims.

The move follows a review of over 500 relevant policies from 40 insurers by the Financial Conduct Authority (FCA) in which it identified a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute.

While most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) and are therefore not obliged to pay out in relation to the coronavirus pandemic, this case is focused on the remainder of policies that could be argued to include cover.

Christopher Woolard, interim chief executive at the FCA said: “The court action we are taking is aimed at providing clarity and certainty for everyone involved in these BI disputes, policyholder and insurer alike. We feel it is also the quickest route to this clarity and by covering multiple policies and insurers, it will also be of most use across the market. The identification of a representative sample of policies and the agreement of insurers who underwrite them to participate in these proceedings is a major step forward in progressing the matter to court.”

Of those insurance companies found to use at least one of the policy wordings in dispute, eight have agreed to participate in the High Court test case. These include Arch, Royal & Sun Alliance and Zurich Insurance.

Given the representative nature of the policies and wordings selected, the FCA expects the test case to provide guidance for the interpretation of many other BI policies that are not in the representative sample.

This means that other insurers will be affected by the test case and its conclusions, and a list of these will be published in July.