Legal update: Covid-19 business interruption test case – FCA expectations and consequentials hearing

The High Court has recently heard a test case brought by the Financial Conduct Authority (FCA) which has provided clarity for policyholders making business interruption claims related to Covid-19.

For more of the background, please see our previous update.

Since publication of the High Court’s judgment (FCA v Arch and Others [2020] EWHC 2448 (Comm)) the FCA has published a “Dear CEO” letter, setting out their expectations of the insurance industry in response to the judgment.  The letter can be read in full on the FCA’s website here).

Some key points from the letter are that:

  • Insurers are encouraged, where possible, to now conclude their claims processes with customers as soon as possible.  In any event they are expected to be clear with policyholders on next steps, and to take a “pragmatic, transparent and consistent approach to their interactions with policyholders”.  The FCA warns that additional steps should not create additional barriers or cause delays to paying valid claims.
  • Irrespective of possible appeals, insurers should be considering the steps they can take now to progress claims of the type that the judgment says should be paid.  Any insurers with policy wordings which are affected by the test case and not subject to any appeal should reassess all potentially affected claims/complaints, unless properly settled on a full and final basis.  Insurers with policy wordings which are subject to a possible appeal should nevertheless continue to progress the claims so that they can be resolved as soon as possible following any appeal judgment.
  • The FCA has cautioned against the practice of some insurers of making deductions from claims payments based on some types of government support which policyholders have benefited from.  Insurers must treat their customers fairly (in accordance with FCA Principle 6).
  • At least an initial update should by now have been provided by insurers to all affected policyholders regarding the implications of the judgment.
  • The FCA warns that if it considers any insurers are failing to meet the expectations set out in the letter, it will use the full range of its regulatory tools and powers to ensure that they do so.

Separately, the Court has now confirmed that the consequentials hearing will now take place on 2 October 2020, where the Court will hear submissions from the parties on declarations to be made by the Court in light of the judgment, and on any applications for appeal.  Details of the live-stream of the hearing are expected shortly.

If you would like to discuss your case, please contact a member of Tyr Law’s Litigation Team.

Author: Nigel Brook