Many of us are aware of the ongoing litigation in the Financial Conduct Authority‘s (FCA) business interruption (BI) insurance test case (FCA v Arch Insurance (UK) Ltd and others). But what are the next steps for this fundamentally important case for thousands of businesses across the UK, and what are the potential implications of the recent developments in the case?
The test case: a brief summary
For those unfamiliar, the FCA test case is the first case to proceed under the (now revoked) Financial Markets Test Case Scheme under Practice Direction (PD) 51M. Proceedings were commenced by the FCA on 9 June 2020, acting on behalf of BI insurance policyholders, in order to seek clarity on the interpretation of specific BI policy wording and to determine issues as to causation. The proceedings came after numerous policyholders (many being small to medium sized businesses), who had purchased extensions of the standard BI policies for non-physical damage, sought to claim for the substantial financial losses that they had suffered as a result of the disruptions and closures to their businesses from the COVID-19 pandemic and subsequent government action.
The FCA test case considers 21 lead policy wordings from the eight defendant insurers, which can be categorised into disease provisions, prevention of access provisions or a hybrid provision of the two.
The judgment was handed down on 15 September 2020, spanning over 150 pages, giving the parties much needed clarity required on many of the issues in dispute. Overall, it was considered to be a favourable outcome for the policyholders, in particular for those with policies that contained disease provisions; those with prevention of access provisions or some hybrid provisions being less fortunate.
Following the handing down of the judgment, steps were taken by the parties in an attempt to reach an agreement on the interpretation of certain elements set out in the judgment. Despite such steps being taken, an agreement could not be met and the parties filed applications to the court for “leapfrog” certificates to enable them to apply to the UK Supreme Court for permission to appeal given the exceptional public importance and urgent nature of the case.
Consequentials hearing
On 2 October 2020, a consequentials hearing took place, dealing with the parties’ submissions as to the declarations to be made by the High Court in light of the judgment and the applications for leapfrog certificates for appeals to the UK Supreme Court.
The High Court granted the leapfrog certificates to the FCA and seven of the eight insurer defendants, with one insurer defendant withdrawing its application before the hearing.
An appeal to the UK Supreme Court?
The next step will be for the parties to make their applications for permission to appeal to the UK Supreme Court. An indication that a hearing could be heard on an expedited basis during the Michaelmas Term 2020 has been made by the Registrar of the Supreme Court, however confirmation of this is still awaited.
It is thought that approximately 700 types of policies across 60 different insurers (and in turn, approximately 370,000 policyholders) could be potentially affected by the outcome of the FCA test case.
Unless a successful appeal is made, the judgment will remain binding on the parties to the test case. In the meantime, both insurers and policyholders are left to interpret similar policy wordings in line with the complex and detailed judgment, which will continue to act as persuasive guidance not only to insurers and policyholders, but also to the likes of the Financial Ombudsman Service when considering complaints.
Other issues
Another point to consider is that, bearing in mind that this is a test case, whilst some clarity has been provided on certain elements, not all disputes such as quantum have been dealt with.
Ultimately, each policy will need to be considered on its own merits when considering whether a valid claim can be made.
In an attempt to provide some assistance, the FCA published a “Dear CEO” Letter on 18 September 2020, setting out its expectations of insurers in light of the judgment, and any possible appeals. Where policy wording is considered to be affected by the FCA test case, but is not subject to a possible appeal, insurers are encouraged to settle valid claims as quickly as possible. Whilst in circumstances where wording may be subject to appeal, insurers are encouraged to take “all reasonable steps to ensure that all those claims are ready to be paid and settled at the earliest possible opportunity after any relevant appeal”. The letter further sets out the FCA’s position in relation to those insurers that are found to not be meeting the FCA’s expectations, stating that “we will use the full range of our regulatory tools and powers to ensure that they do”.
Wider implications of the judgment
For those successful policyholders, there may be scope to bring claims against insurers for additional damages for, for example, late payment of insurance claims under section 28(1) of the Enterprise Act 2016, and section 13A of the Insurance Act 2015. It is understood that this is something already being considered by the Hiscox Action Group.
Furthermore, insurers and brokers alike may be mindful as to whether there are grounds for potential negligence claims to arise as a result of inadequate advice and insurance coverage provided to policyholders.
Conclusion
While the High Court may have handed down its judgment, there are still many issues to be resolved, and all parties will be keeping a close eye on future developments in this crucial case.
