FCA test case result will be of ‘crucial significance’ says law firm partner

The verdict of the unprecedented test case launched by the FCA around the meaning of non-damage business interruption (BI) policy wordings in relation to claims caused by the Covid-19 pandemic will be of “crucial significance”, said James Whitaker, partner at international law firm Mayer Brown.

Tomorrow (15 September), Lord Justice Flaux and Mr Justice Butcher are expected to confirm their verdict on the clarity and interpretation of BI policy wordings, based on a sample of 17 policies from eight different insurers, including Arch Insurance, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox Insurance Company, MS Amlin Underwriting, QBE UK, Royal and Sun Alliance Insurance (RSA) and Zurich Insurance.

The eight-day High Court trial took place online at the end of July – the industry has since been waiting with bated breath to see whether insurers are, in fact, liable to pay coronavirus-related BI claims.

Whitaker described the test case as “one of the most significant and consequential insurance cases”.

He continued: “The Covid-19 pandemic has caused devastating losses for many businesses, with small and medium-sized enterprises in the retail and hospitality sector being particularly hard-hit.

“The extent to which these losses fail to be covered by business interruption insurance policies is the subject of the high-profile test case brought by the FCA, in what may turn out to be one of the most significant and consequential insurance cases in many years.”

Billion-pound issue

Whitaker added that the ruling will be of “crucial significance” – if the court sides with the FCA, for example, “the insurance industry could be faced with a billion-pound issue” of having of pay out for previously rejected BI claims.

“The outcome of the case will be of crucial significance; the decision is expected to impact over 350,000 businesses with non-damage BI policies,” Whitaker said.

“While the ultimate decision will only be binding in certain respects, it will also provide persuasive authority not only in England and Wales, but also in a number of common law jurisdictions.

“If the court agrees with the FCA’s arguments, the insurance industry could be faced with a billion-pound issue.”

However, the verdict on Tuesday is “unlikely to be the end of the story”, continued Whitaker, as the parties concerned have already agreed on an appeals process – this could even be “leapfrogged” straight to the Supreme Court. There is also the potential for further litigation around “specific issues” arising from the case.

“This week’s decision is unlikely to be the end of the story; it will probably be appealed whichever way the ruling goes,” he said.

“The parties have agreed that they will seek to have any appeal heard on an expedited basis, possibly leapfrogging straight to the Supreme Court.

“The court’s decision will not - and is not intended to - address all possible disputes; the position of individual policyholders will depend on the specific wordings and the individual circumstances. There may be significant further litigation around specific issues, as well as around determining issues of quantum in individual cases, not to mention potential litigation around the placement of such policies.

“In any event, this will be a highly significant judgment.”