FCA test case update

21 September 2020

We are very aware that the COVID-19 pandemic is causing hardship across the UK economy and that many are experiencing difficulties in this unprecedented situation. We also appreciate that the Financial Conduct Authority (FCA) has received a number of questions and concerns from customers across the insurance industry where their business interruption policies do not cover COVID-19 losses.

The FCA has therefore undertaken a ‘Test Case’ with a number of insurers in order provide clarity and certainty to customers. Although Methodist Insurance was not one of these insurers, the Judgment is pertinent to our insurance policies.

The Judgment on the Test Case was published on 15 September 2020 and we wanted to update our customers on the outcome.

What the FCA was doing

As a recap, the FCA defined the ‘Test Case’ as:

“The proceedings brought by the FCA to resolve uncertainty as to whether certain non-damage business interruption insurance policies respond to claims related to the coronavirus pandemic.”

And that during the Test Case:

“acting in the public interest, the FCA will put forward policyholders’ arguments to their best advantage. We are aiming to obtain legal guidance in this way more quickly and at a lower cost to policyholders than would be the case if they took their own court actions.”

Further information from the FCA, legal submissions, transcripts from the Test Case hearings and the Judgment can be found at www.fca.org.uk/firms/business-interruption-insurance

The types of claims the FCA was looking at

The FCA set out that:

“Our view remains that most SME insurance policies are focused on property damage (and only have basic cover for BI as a consequence of property damage) so, at least in the majority of cases, insurers are not obliged to pay out in relation to the coronavirus pandemic. This case is focused on the remainder of policies that could be argued to include cover.”

And they have defined a ‘Potentially Affected Claim’ as:

“A claim made under a relevant non-damage business interruption policy for losses relating to the coronavirus pandemic where the outcome of the claim, including issues of causation, may be affected by the final resolution in the test case, whether or not the insurer has declined the claim by issuing a declinature letter or has made an adjustment or deduction for general causation.”

The Judgment: what it said and what it means

The High Court Judgment published on 15 September 2020 clarified that Methodist Insurance policies will not respond to Business Interruption claims in most circumstances, apart from a very limited level of cover under the Methodist Church Shield policy, Section 2 Loss of income, Extension 10 Church Event, and the Circuit and District Shield policy, Section 2 Loss of income, Extension 7 Circuit or District Event.

We recognise that whilst the ruling supports the position we have taken throughout this period, the Judgment will clearly be disappointing to a small minority of our customers who had a different view. We are very mindful that this is an unprecedented situation that has been tough for customers and wanted to take part in the legal proceedings so we could gain maximum clarity for all in the shortest amount of time.

Other forms of help

The Government recognises that its own actions to save lives and beat the virus have resulted in sudden and acute difficulties for businesses large and small. It has announced several very substantial initiatives to help them overcome these, a number of which may apply to your business. We would encourage our policyholders to take full advantage of these where appropriate. These include loans on advantageous terms, cash grants, and employment protection measures. We recommend checking the Government website for more details and in Scotland
 
We are also supporting our customers with advice and guidance, aligned to the Government’s guidelines, to help mitigate the impacts of COVID-19, which is available on our website. For specific risk advice about topics including, health and safety, fire and security, you can contact our risk experts on 0345 600 7531.