This post was written by Christopher Walker.


On the 15 September, the judgment in FCA's highly anticipated business interruption ("BI") insurance test case was published by the High Court, as the four month process was brought to an initial conclusion.

Most SME policies are focused on property damage and only have basic cover for BI as a consequence of property damage.   But some policies also cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).  In some cases, insurers have accepted liability under these policies; in others, insurers have disputed liability, leading to widespread concern about the lack of clarity and certainty.

With the objective of providing clarity and certainty for all parties involved, the case assessed whether clauses in sample policy wording provided by eight defendant insurers would provide cover for losses sustained by businesses during the Covid-19 pandemic.

The FCA noted that the outcome of the decision could affect approximately 370,000 policyholders covered under business interruption insurance policies.

The judgment

The court found that most, but not all, of the disease clauses in the sample provide cover and that certain denial of access clauses in the sample provide cover. However in both cases this depends on the detailed wording of the clause and how the business was affected by the Government response to the pandemic, including for example whether the business was subject to a mandatory closure order and whether the business was ordered to close completely.

The test case has also clarified that the pandemic itself and the Government and public response were a single cause of the covered loss, which is a key requirement for claims to be paid even if the policy provides cover. 

The judgment will be welcome news for many policyholders, but each policy will still need to be considered against the detail of the judgment to determine what it means for that policy.  However the test case has removed the need for policyholders to resolve a number of the key issues individually with their insurers. 

What’s next?

Insurers must contact affected policyholders by 22 September 2020 to provide them with an update in light of the decision in the case.  The FCA has also published a Dear CEO Letter outlining its current expectations for insurers in light of the judgment.

Affected policyholders are not prevented by the decision from taking legal action through the courts or making a complaint to the Financial Ombudsman if deemed appropriate.

A consequentials hearing will take place on 2 October 2020 where it is probable that the defendant insurers will seek permission to appeal the judgment; owing to the Framework Agreement entered into by all parties within the case, the case will bypass the Court of Appeal for the UK Supreme Court if permission for such an appeal is granted.