COVID-19/AIDA Reinsurance Working Party Zoom Meeting – UK FCA Test Case

FCA TEST CASE: Discuss the reasoning of the FCA test case and their implications on the individual policy wordings as well as those that will have a wider application.

Speakers: Ozlem Gurses and Robert Merkin

Moderators: Jorge Angell  and Carlos Estebenet

Typically, a policy that insures business interruption (BI) losses is triggered by a loss of profit that follows a physical damage to the property insured. The word “physical” refers to something tangible with material existence and “damage” is shown when the physical integrity of the property is altered.

Some policies may provide cover for BI losses independent of physical damage, generally through an extension clause in the insurance contract. Financial Conduct Authority v Arch Insurance and Others [2020] EWHC 2448 (Comm) (the FCA case) was a test case on the meaning of such extensions to cover. The FCA estimated that the test case covered some 700 policies issued by over 60 different insurers and affecting up to 370,000 policyholders.   Whereas the court reviewed a number of policy wordings, no actual claims were dealt with in the judgment.

After the judgment was handed down on 15 September 2020, the Court confirmed that the consequentials hearing will take place on 2 October. The Court will hear submissions from the parties on the appropriate declarations to be made by the Court in the light of the judgment and on any applications for appeal.

The judgment presents the Court’s preliminary rulings on the meaning of 21 policies falling into three broad categories: (i) “Disease Clauses”; (ii) “Hybrid Clauses”; and (iii) clauses covering prevention of access and similar perils.

Materials used in support of the presentations are attached. To view the session please click here.