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Background to the FCA’s Test Case

If you have purchased an AIG insurance policy that provides business interruption cover of the type described below then you may wish to know about a High Court case brought by the UK regulator – the Financial Conduct Authority (the ‘FCA’). 

In 2020 the FCA brought a case in the High Court about the extent to which certain non-damage business interruption policy wordings responded to COVID-19 related losses (the ‘Test Case’). 

The FCA’s purpose in bringing the Test Case was to provide clarity and certainty for policyholders and insurers about whether certain policy wordings covered non-damage business interruption claims arising from COVID-19. The FCA made arguments in the interests of policyholders in the Test Case.

Appeal of the Test Case Judgment

Some of the parties to the Test Case appealed against parts of the Test Case judgment.  The appeal involved the Supreme Court re-considering the High Court’s answers to the questions considered by the High Court.  

The appeal took place over four days between 16 and 19 November 2020. You can find more detailed information about the appeal, including the parties’ written submissions and transcripts of the hearing, on the FCA’s website [here]. 

The Supreme Court gave its judgment in the Test Case on 15 January 2021. You can find the judgment [here] and a summary [here] on the Supreme Court website. The FCA have also published a summary on their website [here].

The Supreme Court’s Test Case judgment is long and complex. In brief summary:

  • The Supreme Court Judgment substantially allowed the FCA’s appeals and dismissed the insurers’ appeals.
  • The Supreme Court found that certain denial of access clauses provide cover for government guidance expressed in clear and mandatory terms.
  • The Supreme Court also found that certain denial of access clauses provide cover for measures which either prevented the operation of a discrete part of a business or the use of a discrete part of premises. 
  • The Supreme Court ultimately reached a similar conclusion to the High Court about the scope of the cover under disease clauses providing cover for notifiable disease in a defined radius of premises (albeit by a different legal route).
  • The Supreme Court rejected the High Court’s finding that that there was no cover for pre-trigger COVID-19 related BI losses. The Supreme Court held that trends clauses could only take into account circumstances unconnected to the COVID-19 pandemic.

Several aspects of the High Court’s judgment were not appealed and were therefore not dealt with in the Supreme Court Decision. For example, the High Court’s decision in respect of wording concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises was not appealed. 

The High Court Judgment in the Test Case

The High Court gave its decision (known as its ‘judgment’) in the Test Case on 15 September 2020. You can find the judgment [here]. You can find more detailed information about the Test Case, including the judgment, on the FCA’s website [here].

The High Court’s Test Case judgment is long and complex. In brief summary:

  • The High Court generally found in favour of the FCA/policyholders on questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from the occurrence of disease (for policies where disease is defined to include COVID-19) within a vicinity or radius of insured premises. 
  • The High Court found the position varied in relation to questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from denial of access to insured premises as a result of government action. For some wordings, for example those concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises, it was found that there was no cover in respect of the national COVID-19 pandemic.
  • The High Court found certain exclusions in some policy wordings (concerning for example pollution and contamination) did not apply where those policy wordings were found to provide cover for COVID-19 related business interruption losses.
  • The High Court did not determine fact-specific issues such as whether claims could be made for multiple separate instances of loss or the amount that should be paid in particular cases.

Implications for claims on AIG policies

The FCA published guidance to insurers on 17 June 2020 on the handling of claims and complaints concerning non-damage business interruption claims related to COVID-19 under relevant policies (the ‘Guidance’). 

In doing what the FCA expects under the Guidance, we have: 

  • reviewed relevant non-damage business interruption policies (i.e. any policies which have the ‘Disease’ and/or ‘Prevention of Access’ covers mentioned above and for which AIG has declined or reduced COVID-19-related business interruption claims or stated that claims are not covered) to determine whether claims or complaints under them may be affected by the Test Case; 
  • decided whether claims or complaints that may be affected should be progressed pending the outcome of the Test Case; and 
  • informed policyholders of the outcome of that review.

We have written to policyholders (or, where applicable, their brokers) who have relevant non-damage business interruption policies and who have made claims or complaints in relation to COVID-19-related business interruption, to inform them of the outcome of our review and how it affects their claims or complaints.

We have informed some policyholders that we believed our decision regarding their claim or complaint would not be affected by the final outcome of the Test Case, and therefore we did not consider it necessary to re-open their claim or complaint. Neither the High Court’s Test Case judgment nor the Supreme Court’s Test Case judgment have changed that view, and so we do not propose to re-open any of those policyholders’ claims or complaints.

We have informed other policyholders that our assessment of their claim or complaint might be affected by the final outcome of the Test Case. We have written further to those policyholders to explain (a) the impact of the High Court’s Test Case judgment on their claim or complaint, (b) the impact of the Supreme Court’s Test Case judgment on their claim or complaint, and (c) the next steps AIG proposes to take with respect to their claim. 

The Supreme Court Test Case judgment and the Order that was made following it represent the final outcome of the Test Case. 

Corbin & King

On 25 February 2022 the High Court handed down judgment in Corbin & King Ltd and others v Axa Insurance UK plc [2022] EWHC 409 (Comm). That case concerned whether cover for BI loss resulting from national government action taken in response to the COVID-19 pandemic was available under a non-damage denial of access clause in a combined business insurance policy. You can find more detailed information about the case, including a note on the judgment, on the FCA’s website [here].

In Corbin & King the High Court considered a non-damage denial of access clause that covered Business Interruption resulting from ‘actions taken by police or any other statutory body in response to a danger or disturbance at [the insured] premises or within a 1 mile radius of [those] premises’.

The High Court decision is long and complex. However, in summary, it found that this clause provided cover for national government action, on the basis that such action was taken by a statutory body and that cases of COVID-19 in the radius were a danger or disturbance which were a cause of that action.

The High Court did not overturn the decision in respect of other non-damage denial of access clauses made by the High Court in the Test Case as set out above, because the Test Case considered clauses with a different wording.

AIG has previously informed some policyholders that the outcome of their claim under ‘danger or disturbance’ type non-damage denial of access clauses might be affected by the final outcome of the Test Case. AIG has re-reviewed those wordings in light of Corbin & King and considers that they are more similar to the clauses considered in the Test Case than to the clause considered in Corbin & King.

AIG will therefore continue to treat claims under those clauses as responding only to localised events in accordance with the High Court Test Case decision and will not therefore cover claims arising from the international pandemic.  We therefore do not propose to re-open any of those policyholders’ claims or complaints.

AIG will however keep its position under review in the light of any future relevant determinations of the Courts.

The FCA’s test case: your questions answered

The Test Case was a claim that the Financial Conduct Authority (the ‘FCA’) brought in 2020. AIG was not a party to the Test Case. The FCA’s purpose in bringing the Test Case was to provide clarity and certainty for policyholders and insurers about whether certain policy wordings covered non-damage business interruption claims arising from COVID-19. The FCA made arguments in the interests of policyholders in the Test Case.

The High Court gave its decision (known as its ‘judgment’) in the Test Case on 15 September 2020. Links to more detailed information about this judgment are set out below.

The FCA and some of the defendant insurers appealed parts of the High Court judgment to the Supreme Court (meaning that they asked the Supreme Court to decide whether they agree with the High Court’s decision). The Supreme Court gave its judgment in the Test Case on 15 January 2021. Links to more detailed information about this judgment are set out below. 

The Test Case considered legal questions about:

  • Whether, in principle, certain policies which cover business interruption loss caused by disease or by some prevention or restriction of access to or use of your business premises caused by government or authority action, respond to COVID-19 related business interruption loss.
  • Where claims for COVID-19 related business interruption claims are covered, how the amounts payable under the policies should be calculated.
  • Whether certain exclusions, including for pollution and contamination, preclude claims for COVID-19 related business interruption losses.

The Court did not consider whether any specific claims were valid, or the value of any individual claims.

You may have received a letter/email which said your claim was ‘potentially’ affected by the Test Case. That was likely because your claim related to a provision in your policy concerning business interruption loss caused by disease or some prevention or restriction of access to or use of your business premises caused by government or authority action, and that provision in your policy is similar or identical to policy wordings that the Court considered in the Test Case. 

We considered (a) the impact of the High Court’s Test Case judgment, and (b) the impact of the Supreme Court’s Test Case judgment on claims and complaints ‘potentially’ affected by the Test Case. We have written to those policyholders to inform them of the outcome of our review and how it affects their claims or complaints.  

The Test Case did not determine all the legal issues relevant to claims/complaints, or factual matters relating to the amount if any that insurers must pay in respect of claims/complaints.

The FCA expects all insurers including AIG to follow the Guidance it has published in relation to the Test Case, and AIG is doing that. 

That Guidance applies to all insurers that have issued non-damage business interruption cover which is similar to the policy wordings considered in the Test Case, not just the eight insurers who were directly involved in the Test Case. Insurers are expected to determine whether claims concerning COVID-19 related losses are potentially affected by the Test Case.

One of AIG’s standard form non-damage business interruption policy wordings (Marsh Resilience, known as RSA4 in the litigation) was considered in the Test Case. Certain of AIG’s other standard form non-damage business interruption policy wordings contain words and phrases similar to certain words and phrases used in policy wordings considered in the Test Case. Those policy wordings were all potentially affected by the Test Case.

The High Court gave its judgment in the Test Case on 15 September 2020. You can find the judgment [here]. You can find more detailed information about the Test Case, including the judgment, on the FCA’s website [here].

The High Court’s Test Case judgment is long and complex. In brief summary:

  • The High Court generally found in favour of the FCA/policyholders on questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from the occurrence of disease (for policies where disease is defined to include COVID-19) within a vicinity or radius of insured premises. 
  • The High Court found the position varied in relation to questions regarding the availability of insurance cover for COVID-19 related business interruption losses where policies provide cover for losses resulting from denial of access to insured premises as a result of government action. For some wordings, for example those concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises, it was found that there was no cover in respect of the national COVID-19 pandemic.
  • The High Court found certain exclusions in some policy wordings (concerning for example pollution and contamination) did not apply where those policy wordings were found to provide cover for COVID-19 related business interruption losses.
  • The High Court did not determine fact-specific issues such as whether claims could be made for multiple separate instances of loss or the amount that should be paid in particular cases.

Some of the parties to the Test Case appealed against parts of the Test Case judgment. The ‘appeal’ involved the Supreme Court reconsidering the High Court’s answers to the questions considered by the High Court. 

The appeal took place over four days between 16 and 19 November 2020. You can find more detailed information about the appeal, including the parties’ written submissions and transcripts of the hearing, on the FCA’s website [here]. 

The defendant insurers’ appeals focussed on the High Court’s decision that where cover for COVID-19 was established under disease clauses, that cover extended to cover the national COVID-19 pandemic and the national UK government response. 

The FCA and Hiscox Action Group’s appeals focussed on:

  • The High Court’s decision that there was no cover for pre-trigger COVID-19 losses and that, instead, pre-trigger COVID-19 losses could be taken into account by insurers as a ‘trend’ under trends clauses. 
  • The High Court’s finding that certain denial of access wordings only respond to legally binding government action (and not to government advice). 
  • The High Court’s finding that certain denial of access wordings only respond to a complete denial of access for business purposes.

Several aspects of the High Court’s judgment were not appealed. For AIG’s standard form non-damage business interruption policy wordings, the key points not being appealed included:

  • The High Court’s decisions on the RSA4 (Marsh Resilience) policy wording; and
  • The High Court’s decision that policy wording concerning government action responding to a ‘danger or disturbance’ in the vicinity of insured premises did not provide cover for the national COVID-19 pandemic.

The Supreme Court gave its judgment in the Test Case on 15 January 2021. You can find the judgment [here] and a summary [here] on the Supreme Court website. The FCA have also published a summary on their website [here].

The Supreme Court’s Test Case judgment is long and complex. In brief summary: 

  • The Supreme Court Judgment substantially allowed the FCA’s appeals and dismissed the insurers’ appeals.
  • The Supreme Court found that certain denial of access clauses should provide cover for government guidance expressed in clear and mandatory terms. 
  • The Supreme Court also found that certain denial of access clauses should provide cover for measures which either prevented the operation of a discrete part of a business or the use of a discrete part of premises. 
  • The Supreme Court ultimately reached a similar conclusion to the High Court about the scope of the cover under disease clauses (albeit by a different legal route). 
  • The Supreme Court rejected the High Court’s finding that that there was no cover for pre-trigger COVID-19 related BI losses. The Supreme Court held that trends clauses could only take into account circumstances unconnected to the COVID-19 pandemic.

No. We will keep you updated on progress on the AIG website and, if necessary, by updating you directly. We will also be in touch if there are steps we need to take, for example to collect information from you. You should keep all records relevant to your claim so that you have them available if we need them to determine your claim.

We have written individually to policyholders with potentially affected claims to explain (a) the impact of the High Court’s Test Case judgment on their claim or complaint, (b) the impact of the Supreme Court’s Test Case judgment on their claim or complaint, and (c) the next steps AIG proposes to take with respect to their claim. 

The Supreme Court Test Case judgment and the Order that was made following it represent the final outcome of the Test Case.

The Supreme Court Test Case judgment and the Order that was be made following it represent the final outcome of the Test Case. 

We have written individually to policyholders to inform them of the impact of the Test Case on their claim or complaint. We do not propose to re-open any of those policyholders’ claims or complaints as a result of the Test Case.

Other sources of information about the Test Case

The FCA’s dedicated webpage (https://www.fca.org.uk/firms/business-interruption-insurance) provides helpful and detailed information on the Test Case, including the formal Court documents filed by the parties. You may wish to subscribe for email updates on the Test Case from the FCA on the FCA’s webpage. Further information regarding business interruption insurance cases is also available on the Financial Ombudsman Service’s webpage  

(https://www.financial-ombudsman.org.uk/businesses/complaints-deal/complaints/coronavirus-covid-19-information-businesses). This may be of interest to any policyholders who have made complaints in relation to COVID-19-related business interruption and whose complaints have been referred to the Financial Ombudsman Service.