BI insurance test case set for late July

Woolard: Major step forward

The Financial Conduct Authority (FCA) is expecting the High Court to hear its test cases on whether business interruption (BI) insurance policies cover Covid-19 in the second half of July.

It will put forward a sample of 17 policy wordings that capture the majority of the key issues that could be in dispute, having reviewed over 500 policies from 40 insurers.

In an update on the litigation today, the regulator said it approached 56 insurers in all, and the process led to “a number” of them deciding to accept claims from policyholders with certain policies which included particular wordings which had previously been in dispute.

The FCA has published a preliminary list of policy wordings which match the 17 that will be scrutinised, and eight insurers have agreed to co-operate with the litigation: Arch, Argenta, Ecclesiastical, Hiscox, MS Amlin, QBE, Royal & Sun Alliance, and Zurich.

The claim form should be filed next Tuesday, with a view to a case management conference two days later and eventually a hearing lasting five to 10 days in the second half of July.

The authority has also put out a short consultation on draft guidance asking all insurers to check their policy wordings against those the FCA intends to test to see if theirs will be impacted by the outcome of the case. A final list should be published in early July.

In addition, the consultation sets out the FCA’s expectations of all firms handling BI claims before the High Court rules – it says they can continue to try and settle test claims, but should inform the policyholder of the litigation.

Christopher Woolard, interim chief executive of the FCA, said: “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.”

City firm Herbert Smith Freehills is acting for the FCA, which has also instructed Colin Edelman QC, Leigh-Ann Mulcahy QC and Richard Coleman QC.

The FCA’s initial view is that most SME insurance policies are focused on property damage and so, at least in the majority of cases, insurers are unlikely to be obliged to pay out in relation to the pandemic.

But it said the range of wordings and types of coverage were “sufficiently broad in the BI market that it is difficult to determine at a general level the degree to which any one individual customer may be able to claim”.

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