Business interruption insurance during the coronavirus pandemic – High Court test case

May 15th '20

This statement sets out how the Financial Conduct Authority (FCA) is engaging with policyholders and insurance intermediaries on business interruption (BI) insurance.


The coronavirus (Covid-19) pandemic and the Government controls imposed as a result are causing a substantial level of loss and distress for businesses, in particular for SMEs. A large number of claims are being made to insurers under the terms of business interruption (BI) insurance policies.

There is continuing and widespread concern about the lack of a positive response of some of those BI insurance policies, and the basis on which some insurers are making decisions in relation to claims.

On 1 May 2020, FCA released a statement that they intend to obtain court declarations aimed at resolving contractual uncertainty in selected BI insurance policies. Acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage. They are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.

The FCA recognises that many claims will already be the subject of negotiation or other dispute resolution processes. This proposed action is not intended to impact this normal claims process. It is designed to assist policyholders, and particularly SMEs, whose claims are being refused when they think the firm should respond.

The intended action will not prevent individuals from pursuing issues through negotiated settlement, arbitration, court proceedings as a private party, or taking eligible complaints to the Financial Ombudsman Service.

The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the representative sample considered. It will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other court cases, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly.

The FCA wish to ensure that policyholders and insurance intermediaries are properly engaged throughout this process.

Invitation to policyholders and insurance intermediaries to provide information

The coronavirus pandemic will have affected policyholders in different ways. The issues relevant to the intended proceedings will therefore be wide-ranging and complex. The FCA recognise that the intended proceedings will better achieve consumer protection and market integrity objectives if they cover as broad a cross section of policies and issues as is compatible with an expedited court process. The FCA are reviewing extensive material provided by insurers to do this.

At this stage, the FCA are inviting policyholders and insurance intermediaries who are aware of unresolved disputes with insurers over the terms of BI policies to engage with us, if they want us to take their concerns into account as part of the test case. In particular, they invite you to put forward:

  • your arguments why you consider cover should be available, together with details of policies that you consider have not responded appropriately to a claim and
  • brief relevant facts of the case

The FCA will consider all arguments raised.

They will treat information receive as confidential and covered by the FCA’s litigation privilege (meaning they would be entitled not to produce it to a third party or the court).

Please email any material you want us to consider by Wednesday 20 May 2020 to:

It is important that the FCA receive and evaluate policyholders’ arguments now, given that they intend to seek the court’s view on relevant policies as soon as possible.

Given the volume of information the FCA expect to receive, they cannot commit to replying to individual communications.

The FCA’s legal team

They have instructed Herbert Smith Freehills, a leading law firm with a highly regarded practice representing policyholders. The team at Herbert Smith Freehills is led by Paul Lewis.

The FCA have also instructed an external team of leading counsel highly experienced in insurance issues.

How the FCA will be available to policyholders

The FCA will be available to policyholders throughout the court process:

  • created a dedicated webpage where the FCA will provide information, updates and access to documents including court ‘pleadings’ and a form to sign up for updates
  • the FCA and their solicitors, Herbert Smith Freehills, will be available for discussion with action groups and policyholders and their legal representatives, for example at workshop style meetings

How the FCA intends to engage with policyholders

The FCA intend to engage with policyholders at key stages of the court action, including:

  • considering those arguments and factual circumstances communicated by policyholders and insurance intermediaries to us now
  • using the arguments, policies and fact patterns put forward by policyholders to inform the sample of policy wordings and fact patterns (a summary of the key facts of a case) to be used in the court proceedings
  • making public all the ‘pleadings’ in the test case
  • where policyholders and action groups have appointed legal representatives to represent them, having discussions during the preparation of the FCA’s pleadings and submissions
  • publishing other material relevant to the test case – subject to certain statutory limitations discussed below

Limitations on the FCA sharing information

There are statutory limitations on the information about firms, people and markets that the FCA can release to the public.

  • Those explained in the guide to information they can and can’t share, which derive from s.348 of the Financial Services and Markets Act 2000. The FCA are unable to disclose confidential information without consent unless a specific statutory ‘gateway’ to disclosure applies.
  • Limitations on FCA ability to disclose ‘inside information’, which is information that could have a significant effect on the price of securities issued by insurers which are admitted to trading in a UK or EU trading venue.  The FCA may only disclose inside information where it is necessary to perform functions properly.
  • Limitations on the disclosure of personal data in the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.

The FCA will also need to maintain legal privilege in communications received from third parties to which privilege attaches. The FCA may also need to keep confidential certain legal documents they or their advisers generate to avoid undermining FCA position in the test case.

However, the FCA can release documents which have been made available to the public or are not subject to these limitations. So the FCA will publish such information and documents on FCA webpage and in email updates. They intend to engage with policyholders as far as possible while upholding FCA statutory and common law duties.

Source: FCA