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Updated 27 April 2021

The Financial Conduct Authority (FCA) have been seeking guidance through a Test Case in the interpretation of certain policy wordings on Business Interruption and the impact of the coronavirus (COVID-19) pandemic.

This is to determine whether specific, disputed policy wordings called for the payment of Business Interruption claims arising from the pandemic.

According to Compass London Markets, it’s important to know that not all Business Interruption policies will provide cover for the COVID-19 pandemic.

Disease Clauses

The business interruption losses claimed must have been caused by the case or cases of COVID occurring within the prescribed area (however see the comments on causation below). Additionally, each case of illness sustained by a person as a result of COVID-19 is a separate “occurrence”.

Prevention of Access/Hybrid Clauses

The relevant restrictions imposed did not have to have the force of law, it was enough for them to be clear instructions given by a competent authority, with the imminent threat of legal compulsion. While the ruling isn’t specific about what would satisfy that test, instructions given by the Prime Minister would likely do so. This will have the effect of bringing the relevant policy trigger forwards earlier than the formal Regulations issued on 21 and 26 March and potentially also of bringing within scope businesses not expressly required to close by those Regulations.

An inability to use/prevention of access/interruption could equally apply to a discrete part of a business, e.g. a restaurant able to continue to provide a takeaway service had an “inability to use”, “prevention of access to” or “interruption of” its discrete dine-in business.


All instances of COVID were an “equally effective” proximate and therefore “legal” cause of the Government measures and public response, which had been the alternate finding of the High Court. For the purposes of the disease clauses therefore, it’s sufficient to show that at the time of any Government measure/restriction, that there was at least one case of COVID within the relevant radius specified by the policy.

Trends clauses / Pre-Trigger Losses

Only truly extraneous circumstances can be considered for the purposes of trends clauses, i.e. only non-COVID related circumstances.

Further, any COVID related downturn in business prior to the triggering of the insured peril, e.g. a downturn in business prior to the imposition of the relevant restrictions, should also be disregarded for the purposes of the trends analysis: “adjustments should only be made to reflect circumstances affecting the business which are unconnected with COVID-19”.

Statement on deductions made for government support

The FCA have published an updated statement on non-damage business interruption settlements and deductions made for government support.

This statement was made following complaints from policyholders and other stakeholders about insurers making deductions from business interruption (BI) insurance claim payout for some types of Government support given to policyholders.

The conclusion of the test case

The FCA’s Business Interruption insurance test case reached its conclusion and found in favour of policyholders on the majority of the key issues contested. The FCA published a policy checker and FAQs on 29th January 2021 to help policyholders find out if their insurance policy may cover business interruption losses caused by coronavirus and what they can do next.

This is legally binding on the insurers that are parties to the test case in respect of the interpretation of the representative sample of policy wordings considered by the court.

Insurers appealed the decision of the courts and the results were announced on 15th January 2021, in which the court upheld the original ruling. The judgment is good news for those businesses that had purchased an unspecified diseases extension. And will be reassuring for those who have been waiting to find our if their claims will be paid.

The ABI has indicated that: “Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim. All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.”

BIBA, the British Insurance Brokers Association, are asking that insurers include brokers in their claims settlement process and to bring outstanding claims to a swift conclusion.

The judgment is detailed and could have long ranging impacts so we are studying the detail and taking some advice on what this means for our policyholders. We will continue to update this article as the situation develops.

About the test case

The case considered a representative sample of 21 different policy wordings from eight providers to determine whether cover for the COVID-19 pandemic was included in the ‘disease’ and/or ‘denial of access’ clauses in the representative sample of policy wordings.

The judgment says that most, but not all, of the disease clauses in the sample provide cover and that certain denial of access clauses in the sample provide cover, but this depends on the detailed wording of the clause.

The legal representatives of the FCA, Herbert Smith Freehills have published a summary on their website.

You can also read the FCA’s announcement here.

The FCA has asked insurers to contact policyholders with affected claims within the next seven days, to let them know how they will be affected by the judgment. We will be working closely with insurers, to ensure that you are kept up-to-date with news and developments on this.

FSB’s statement on the judgement

Responding to the original result of the Financial Conduct Authority (FCA)’s business interruption test case, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said:

“This ruling marks a big step forward. It can only be celebrated as a partial victory, however, as it still leaves many with little certainty around whether they will receive pay-outs for policies that have cost them thousands. And for many others with standard interruption cover, this judgement will have no bearing.

“The FCA was absolutely right to argue that disease or denial of access clauses within interruption policies should trigger pay-outs in the event of coronavirus-linked disruption. We’re hugely grateful for its work in this space.

“We echo the regulator’s call to insurers to reflect on the clarity provided by this judgement and do the right thing by policyholders, many of which are fearing for their futures after six months of serious disruption. They acted responsibly by taking out these policies, and having them honoured is crucial to encouraging more firms to do the right thing where insurance is concerned.”

Next steps for policyholders

A list of the specific policies, listed by insurer, and the judgement for each can be found here.

Policyholders who have made a claim or complaint that is potentially affected by the judgment should receive an update from their insurer within seven days, according to the FCA.

In the meantime, policyholders making or settling any claim under their business interruption policy, are not prevented from making a complaint to their insurer if they are dissatisfied with the outcome, and referring their complaint to the Financial Ombudsman Service (FOS).

Policyholders with complaints submitted to FOS are potentially affected by the judgment and should await further information from the Ombudsman. Further information about BI complaints can be found on the FOS website. 

The FCA have published finalised guidance setting out how to prove the presence of coronavirus (Covid-19) in a particular area, based on the High Court’s judgment and declarations.

You can also read their feedback statement summarising the feedback received on our draft guidance published on 11 December 2020.

The FCA have published their “Business Interruption Calculator” which can be used to help when making a claim under your Business Interruption policy.

Stay up to date

The Financial Conduct Authority (FCA) has a webpage dedicated to sharing as much information as possible about its efforts to obtain a court declaration to resolve the contractual uncertainty around the validity of many business interruption (BI) claims arising during the Coronavirus (Covid-19) pandemic.  You may access the webpage by clicking here.

The FCA is regularly updating this page with information on what it has done and is doing.

If you hold business interruption cover, you may wish to subscribe for e mail updates from the FCA on the FCA’s webpage for the test case.

If you are eligible, you may also wish to look at material issued by the Financial Ombudsman Service concerning business interruption insurance cases, which you can access here.