Update on progress of FCA's Business Interruption Test Case


Key developments

The FCA confirmed that proceedings have been started in the High Court. The result of the test case will be legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by court. In respect of non-parties, the result will form persuasive guidance. The claim is brought pursuant to the Financial Markets Test Case Scheme.

The FCA has published the court documents it filed including:

  • Claim Form, a procedural document initiating legal proceedings and summarising what the FCA is seeking
  • Particulars of Claim , which is the FCA’s ‘pleading’ in the case, setting out the claim in writing
  • Representative Sample of Policy Wordings, which is a selection of policy wordings which the FCA believes captures the majority of the key issues that could be in dispute. The FCA published a tracked changes version which clearly demonstrates the changes made to the document since 1 June.
  • Assumed Facts, which are a set of illustrative factual assumptions (for example: the nature of the affected business(es), how they were affected and whether they closed entirely or partially, and why). These potential fact patterns intend to assist the court and not all of the assumed facts will be applied to all of the representative sample of policy wordings. A tracked changes version demonstrates the changes made to the document since 1 June.
  • Questions for Determination by the court, which are a list of potential questions arising from insurers’ reasons for denying claims, and which have informed the FCA’s Particulars of Claim along with a tracked changes version.
  • Issues Matrix, which shows which questions for determination by the court are engaged by each policy in the representative sample, along with a tracked changes version to compare the version since 1 June.
  • Application Notice, which is a procedural document indicating that the FCA intends to apply for an order that the trial of the claim be expedited.
  • Witness Statement, which is the FCA’s evidence in support of the application that the test case be heard urgently. The Statement also contains information in support of the test case.
  • Draft Order, which is the order the FCA is asking the court to make in respect of this application.

The FCA has also published an updated and a tracked changes version of the list of affected insurers and BI policy wordings, emphasising that this list is not exhaustive.

FCA actions since 1 June

Since 1 June the FCA received more than 270 submissions from policyholders, and other stakeholders, relating to the scope of the test case and have conducted more than 45 consultations.

The comments received by the FCA helped formulate the documents above, especially influencing the way the FCA stated its case in the Particulars of Claim, including in relation to certain causation points, which amounts to “prevention” and “interference” and the correct application of “trends clauses”.

Further, the comments encouraged the FCA to clarify certain matters such as what the test case will decide. The FCA clearly states on its webpage that the result of the test case will be legally binding and it will also provide persuasive guidance for the interpretation of similar policy wordings and claims, that can be taken into account in other cases including in Scotland and Northern Ireland, by the Financial Ombudsman Service and by the FCA in looking at whether insurers are handling claims fairly. The test case is not intended to encompass all possible disputes, but to provide clarity to policyholders and insurers. It will not determine how much is payable under individual policies, but will provide the basis for doing so.

It is the FCA’s expectation that, following final resolution of the test case (including any appeals), insurers should apply the judgement in (re-)assessing all outstanding or rejected claims and complaints which may be affected by the test case. In early July, the FCA will publish a list of all policies and claims that may be affected.

The FCA explained that in order to make the process as simple and fast as possible, as well as providing much needed clarity, the policy wordings selected by the FCA are those which are representative of key arguable issues on the basis of securing the maximum relevant coverage for relevant policies while minimising the number of parties engaged before the court.

Next Steps

The first Case Management Conference before a Judge is expected to take place on 16 June 2020. The Judge will be invited to consider the FCA’s application for expedition and admission to the Financial Markets Test Case Scheme, fix the timetable for the case and deal with other procedural matters. The FCA intends to ask the Judge to agree to live-stream the hearing.

The FCA expects to issue a further invitation to policyholders and other stakeholders to provide comments shortly after 23 June, when the insurers who are party to the test case file their Defences. This will help the FCA ensure that stakeholder comments are reflected in its Reply and skeleton arguments prepared for the final court hearing.

The FCA also expects to publish a list of all relevant insurers and BI policy wordings that may be impacted by the test case in early July 2020.

Article co-authored by Anna Burdzy