Blog: The issues under contention in the FCA's BI test case

The court’s decision will be handed down this week. 

The outcome of the case will be of crucial significance: the decision is expected to impact 370,000 businesses with non-damage BI policies. 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 claims of between £9bn and £16bn – the biggest catastrophe loss in UK history. 

The two key issues in dispute are:

1. The coverage issue: do certain BI policies, which provide cover in principle for BI losses without the need for physical or property damage, cover losses resulting from the pandemic?
2. The causation issue: as a matter of law and of fact, and in light of the BI policies, is there the necessary causal link to any loss suffered by the policyholder?  Did the closures of policyholders’ premises cause their losses, or would those losses have happened anyway?

The FCA’s position is that the response of the UK Government to Covid-19 was (and is) a single body of intervention which prevented and hindered access to and use of business premises, caused closure of and restrictions on activities within the premises, and interrupted and interfered with business activities. This includes businesses required to close by the government such as pubs, most shops and restaurants, but also businesses that were not ordered to close, because the package of measures (including the “stay at home” instruction) was such that it satisfied the policy trigger. 

Insurers, on the other hand, assert that the only relevant “prevention of access to the premises” on the facts is for those policyholders that were advised to close by the government in March 2020 and did close insured premises.  In addition, insurers note that many of the government’s guidelines were not mandatory, and were akin to messaging rather than an order.

The FCA further asserts that where insuring provisions require the presence of the disease to occur within a certain radius or vicinity of the premises, the insured can (in addition to specific proof in a particular case) prove the presence of Covid-19 at a certain date on the balance of probabilities by statistical or other means without necessarily proving that there was a medically diagnosed case; and certain events (such as danger, emergency) were nationwide, so automatically occurred within the relevant vicinity. 

Insurers disagree: they argue that there must be a causal link where any closure can be pinned to a specific outbreak of the disease within the proximity of the insured premises, rather than a general fear of its prevalence. 

This week’s decision is unlikely to be the end of the story; it will inevitably be appealed (whichever way the ruling goes): the parties have agreed that they will seek to have any appeal heard on an expedited basis in the hope that it is heard either before the end of this year or early next. It is possible that any appeal will leapfrog 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.