UK High Court decides on COVID-19 insurance test case

The UK’s High Court delivered its judgment on Tuesday in the business interruption insurance test case brought by regulator the Financial Conduct Authority (FCA) on behalf of policyholders that incurred losses due to COVID-19.

Some businesses had policy claims for these losses under business interruption insurance rejected — an estimated 370,000 policyholders could be affected by the judgment, the FCA said.

The judgment described examples of language in insurance contracts that would trigger payment of claims related to the pandemic — as well as language that would not require payment of claims.

Business continuity insurance can cover loss of profit and other expenses that arise from physical damage, for example after a fire or flood. The issue under the court’s scrutiny here was where insurance is extended to cover nondamage business interruption, Herbert Smith Freehills, the law firm that advised the FCA, said. It provided a summary of the case.

The judgment, which followed the case’s hearing in July, did not say that the eight defendant insurers are liable across all of the types of policy wording in the representative sample considered by the court, the regulator explained.

The FCA had argued that the “disease” and/or “denial of access” clauses in the representative sample of policy wordings provided cover in the pandemic circumstances and that the trigger for cover caused policyholders’ losses.

Christopher Woolard, the FCA’s interim chief executive, said in a press statement: “[The] judgment is a significant step in resolving the uncertainty being faced by policyholders.” He added that it removed “a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful”. Insurers, Woolard said, should “communicate directly and quickly” with policyholders that have made claims that are affected by the judgment to explain the next steps.

Huw Evans, director-general of the Association of British Insurers, said in a statement that the judgment “divides evenly between insurers and policyholders on the main issues”.

He added: “This is a complex judgment spanning 162 pages … and it will take a little time for those involved in the court case to understand what it means and consider any appeals.”

According to the FCA, the test case was not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and “causation” issues to provide clarity for policyholders and insurers.

Next steps

The FCA and defendant insurers are considering the judgment. They have agreed to seek to have any appeal heard on an expedited basis, which could result in an appeal being “leapfrogged” to the UK’s Supreme Court rather than moving next to the Court of Appeal.

The eight insurance companies that agreed to take part in the test case are:

  • Arch Insurance (UK) Ltd.
  • Argenta Syndicate Management Ltd.
  • Ecclesiastical Insurance Office Plc.
  • MS Amlin Underwriting Ltd.
  • Hiscox Insurance Company Ltd.
  • QBE UK Ltd.
  • Royal & Sun Alliance Insurance Plc.
  • Zurich Insurance Plc.

The Hiscox Action Group and Hospitality Insurance Group Action represented groups of policyholders and made additional arguments to those of the FCA.

Information about the case is available on the FCA website.

Oliver Rowe ( is an FM magazine senior editor.