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FCA business interruption test case – the judgement is in

Why was there a need for a test case and what was the purpose?

In some instances, there were doubts over the appropriate interpretation of the insurers wordings which led to uncertainty and disputes, with many policyholders having what they believe to be valid claims rejected by their insurer.

The intention was to try and help resolve some of the legal uncertainties around business interruption (BI) insurance policy coverage and how various BI policies respond to COVID-19 related claims.

For a more detailed history click here to see out previous Blog on the “test case” published in July.

What was the test case intended to achieve?

That for those eight insurers involved in the test case the decision would be legally binding and in addition, that it would provide persuasive guidance for the interpretation of similar policy wordings and claims that could be considered in other court cases, even if on a different wording.

What did the judgment decide?

As was expected the judgement is highly complex and will take time for all parties involved to fully review it. Only eight insurers’ policy wordings were selected for review and the policy wordings were not specific Real Estate wordings.

At Arlington, we have written to the insurers that we trade with and asked them to confirm their position following this judgement, with particular focus on their Denial of Access cover, and, the Actions of Competent Authorities clause.

In the meantime there have been a number of statements and press releases : –

Financial Conduct Authority (FCA)

“The judgment is complex, runs to over 150 pages and deals with many issues.” “Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid.  They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.” The FCA’s legal team at Herbert Smith Freehills have published a summary on their website, which may be referred to for further detail. Click here for the full FCA press release.

Also following the judgment from the High Court, the FCA have issued a Dear CEO letter outlining their expectations of insurers following the judgment.

Association of British Insurers (ABI)

“This is a complex judgment spanning 162 pages and 19 policy wordings and it will take a little time for those involved in the court case to understand what it means and consider any appeals. Individual insurers will be analysing the judgment, engaging with the regulator, taking account of the appeal process and keeping their customers informed in the period ahead.” Click here for the full article.

British Insurance Brokers’ Association (BIBA)

This was a complex situation requiring legal consideration of the many different issues of proximate causation and wording interpretations. It was pleasing that the ruling provided clarification on some key issues….” and they went on to say – “We recognise how important this case is for customers and the insurance industry alike and we will study the judgement in detail over the coming days while waiting to see if any of the parties appeal.” BIBA has been working with the law firm Weightmans and their insight on the judgement can been found here.

What happens now?

It could be said that this is really just the beginning, not the end, of the whole issue for everyone involved, who now have to establish what the decision actually means.

The FCA have already indicated that the parties have discussed the possibility of an expedited appeal, which could move straight to the Supreme Court, and a consequentials hearing (submissions from the parties on the appropriate declarations to be made by the court and on any applications for appeal) is set for the 2nd October to allow permission applications to be heard. What remains to be seen is the extent of any appeal and the issues to be considered in further detail.

Arlington will continue to closely monitor the situation and provide updates as they are released. If in the meantime you wish to discuss this matter please do not hesitate to contact us.

FCA business interruption test case judgement date released.

The Financial Conduct Authority (FCA) says the keenly anticipated judgement in the COVID-19 business interruption test case will be handed down next week and will be published on the FCA’s website on September 15th at 10.30am

The High Court hearings were held over eight days in July, ending with submissions made by the FCA, Hospitality Insurance Group Action, Hiscox Action Group and eight insurers who agreed to be part of the case.

The insurers involved are Arch, Argenta Syndicate Management, Ecclesiastical Insurance Office, Hiscox, MS Amlin, QBE, Royal & SunAlliance and Zurich.

The court will also decide whether an appeal will be allowed.

Government reveals planning shake-up

The Housing secretary Robert Jenrick recently launched a long-awaited white paper Planning for the Future to consult on reform to the planning system.

“This consultation seeks any views on each part of a package of proposals for reform of the planning system in England to streamline and modernise the planning process, improve outcomes on design and sustainability, reform developer contributions and ensure more land is available for development where it is needed.”

These are “landmark” reforms to the planning system, with the introduction of zoning, new developer levies and a requirement for new local plans.

Key proposed reforms

  • Section 106 developer contributions and CIL to be replaced with a new Infrastructure Levy. This would be a fixed proportion of the value of the development, above a set threshold, with revenues spent locally on infrastructure projects and new affordable housing.
  • The planning process to be overhauled and replaced with a ‘clearer, rules based system’.
  • A new zoning system that categorises land into growth, renewal or protected areas. In growth areas, outline approval would be automatically granted for types of development specified in local plans.
  • Every area to have a zone-based local plan in place, and local housing plans to be developed and agreed in the reduced time frame of 30 months.
  • Local communities to be consulted from the outset of the planning process, with greater input into local plans and the planning system made more accessible through technology.
  • More building to be allowed on brownfield land, with greenbelt land protection to continue.
  • A focus on beauty and green space, with a ‘fast-track system for beautiful buildings’, new local design guidance, and all new streets to be tree lined.
  • All new homes to be carbon neutral by 2050.

Please don’t hesitate to contact us if we can help you with any of the issues mentioned in this article or for advice and help with your insurance needs in respect of any property development related matters such as legal indemnity insurance, construction risk solutions and risk management.

Business Interruption insurance – Financial Conduct Authority (FCA) “Test Case”

Why the need for a test case?

In some instances, there are doubts over the appropriate interpretation of the wording(s) which has led to uncertainty and disputes, with many policyholders having what they believe to be valid claims rejected by their insurer.

What is the purpose?

The intention is to try and help resolve some of the legal uncertainties around business interruption (BI) insurance policy coverage and how various BI policies respond to COVID-19 related claims.

Which Insurers and wordings are affected?

Following a review of 500 relevant policies from 40 insurers, the FCA has invited eight firms to assist the watchdog by participating in the High Court test case. A full list of insurers and the wording can be found on the FCA website.

What will the test case achieve?

For those insurers involved in the test case the decision will be legally binding but in addition it will also provide persuasive guidance for the interpretation of similar policy wordings and claims that can be considered in other court cases even if on a different wording.

The FCA have said – “The test case is not intended to encompass all possible disputes, but to resolve some key contractual uncertainties and ‘causation’ issues to provide clarity for policyholders and insurers. It will not determine how much is payable under individual policies but will provide the basis for doing so.”

What’s happened so far and what’s the timetable?

  • 9 June – FCA started claim in the High Court (click here to see the Particulars of the claim)
  • 16 June – Case management conference, at which the court fixed the timetable for the case and other procedural matters
  • 23 June – Insurers file Defences (click here to see the insurers defences)
  • 26 Jun – Further case management conference, at which the court will deal with any outstanding procedural matters to ensure the case is ready for trial
  • 3 July – FCA files Reply
  • 1st half July – Skeleton arguments and replies served and also the Defendants’ joint skeleton argument on the principles of contractual construction (interpretation) and Defendants’ joint skeleton argument on causation (of loss).
  • Published 17th July Agreed List of Issues and Common Ground summarises what is and is not in dispute between the parties. This supersedes the Questions for Determination.
  • 20-23 July and 27-30 July – 8-day court hearing during which the daily court transcripts are being published.

Undoubtedly the results of this case could have far reaching consequences and a decision either way will provide a degree of clarity around where coverage may respond. This will enable all involved to better understand their own position.

Arlington will continue to closely monitor the situation and provide updates as they are released, and once the case has concluded we will review what impact the decision means for our clients.  If in the meantime you wish to discuss this matter please do not hesitate to contact us.

Update on the Professional Indemnity market

Last July Arlington wrote about the effects of the hardening PI insurance market and the impact we were seeing on property and construction professionals.

Now, all professions are being impacted by the consequences of the Covid 19 lockdown: either in a financial sense with increased premiums or by insurer capacity, with lower limits of indemnity, restrictive wordings or in some cases, certain professions may not being able to obtain renewal terms at all. In this article we will look at the reasons and what businesses can do to prepare themselves.

For over a decade, most professionals have seen stable (and sometimes decreasing) PI premiums: obtaining renewal terms was a relatively easy process with firms often being promised discounts from competing brokers or insurers. However, those firms who have recently renewed their PI insurance (or who are in the process of obtaining renewal quotations) may have noticed that things are changing.

Increased premiums and higher excesses

Insurers have reviewed the business they hold and concluded that the claims that are likely to arise from many professions due to the impact and after-effects of Covid 19 mean they are no longer target business. This is particularly true of firms that are exposed to economic recessionary pressures such as the property, financial and investment sectors.  

Whilst some clients may find their 2020 PI premium increase may be negligible, others may find they are being offered similar premiums for say, £1,000,000 of cover in 2020 as they did for £2,000,000 in 2019. 

Also, where there has been a significant decrease in a practice’s gross fees, this may no longer equate to any premium reduction whatsoever for 2020. 

Policy excesses are also increasing, as insurers seek to protect themselves from future claims.

Reduced insurer capacity

Many insurers are now quoting lower limits of indemnity to ‘cap’ or restrict their underwriting exposure. They may only offer a 50% coinsurance share when quoting renewal terms, meaning that other insurers need to be approached to write the balance; this not only leads to rises in premium but delays whilst additional insurer capacity is sought. 

This has been particularly true on some Accountants (quoted company work or historic tax scheme exposure), Asset Managers, Investment Managers, IFAs etc. where there may now only be a handful of insurers UK-wide able to offer cover. Architects, Surveyors and many property professionals will see full cladding and fire safety/combustibility exclusions imposed on their policies.     

Insurers asking additional questions

Covid 19 questions are becoming the norm on PI policies with insurers checking whether a business’s day-to-day operations have been affected by Covid 19 to the detriment of their clients. For example:

  • How is quality and service being maintained?
  • How is the workload being managed by fewer ‘hands on deck’?
  • Have any staff have been furloughed?
  • Are there are any immediate plans for staff redundancies and if yes, for what roles.

Why is this relevant?

Unqualified staff may have previously been working in an office under close supervision but are now likely to be working from home without supervisory controls. This can lead to errors and in turn, PI claims.  Mistakes may happen when no one else is around to observe or notice work processes – which can be difficult if there isn’t anyone around to refer matters to or give a second opinion. Junior or administrative staff may have been furloughed, leaving directors who are not used to administrative functions being responsible for their own diary actions and correspondence.

Where there is interaction with clients via videoconferencing (for example Zoom or Team meetings), the same standard of vigilance and attention to detail should be maintained as would be expected in a face to face meeting and full notes and records kept of such client interactions.  

There are also additional risks to remote working/working from home, which can lead to Cyber security issues.


The speed in which lockdown was imposed meant that few firms had the chance to fully test their Business Continuity Plans (BCPs) and had to set up remote working practices in very little time. Those firms who had tested their BCPs would never have envisaged working from home for a 4- month period.  Many firms may not have had sufficient time or resources to provide laptops or webcams for their staff with many employees having no option but to use their own PCs when working from home. Personal computers may contain non-audited software and apps which may lead to an increased risk of hacking or phishing. 

Extra security measures are also needed to ensure Cyber security and safety. Action Fraud (the UK’s national fraud and cyber reporting centre) stated there had been a 400% increase in coronavirus related fraud reports during March 2020.

PI insurers may ask businesses about any additional Cyber Security measures they have recently  implemented to counter the enhanced risk posed by remote working, and how businesses ensure data on their employees’ own PCs is secure and virus free. Employees need to be alert to phishing scams or unusual emails. Online payments should be thoroughly checked and preceded by phone calls to verify.

Uncertain times ahead 

Unfortunately there is little likelihood of seeing any improvement in the PI market for remainder of this year and probably into 2021: the PI market continues to harden, premiums are increasing, insurers are ceasing to write certain professions whilst the number of insurers is likely to shrink as firms come under increased financial scrutiny in terms of their liquidity.

What can businesses do to help themselves?

  • Insurers are taking longer to respond with renewal quotations: you should therefore return your proposal renewal forms a minimum of 4 weeks prior to your renewal date.
  • The proposal form is you ‘selling yourself’ to insurers so please take extra care in your renewal presentation and provide supplementary information that explains pertinent issues to insurers.
  • Be prepared for additional questions from insurers and be patient for terms to be released. You may not get as much time to consider quotations as you did in previous years. 
  • Be aware that there may only be one insurer’s renewal quote. Many insurers no longer have the time to quote business that is ‘non-target’ or that they know they will be uncompetitive on.  
  • Be prepared for your PI insurance to cost more: forewarn and talk with your financial director, decision makers and key clients, particularly if certain levels of PI cover need to be maintained for contractual reasons.  
  • Do not be surprised if policy extensions of 14-30 days are granted by insurers (this is in line with most professions’ regulatory requirements)   
  • If you are struggling to obtain compliant PI cover, you should speak to your professional body in good time regarding dispensation, if necessary.

If you would like to discuss any issues raised in this article or are interested in Professional Indemnity or Cyber insurance cover, please contact our Bristol office:

Verena Cole       0117 387 8880

Anna Lloyd         0117 387 8881