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FCA Update and Guidance following judgment in the Business Interruption Insurance Test Case

16 September 2020

The much-awaited decision in the FCA’s High Court test case in relation to non-damage business interruption (BI) insurance policies and their response to the COVID-19 pandemic was published yesterday (15th September 2020) (the Judgment). The 162 page decision is indicative of the degree of complexity that the Judges found in analysing the BI wordings they were asked to consider – complexity which itself may be seen by many – including the FCA – as a systemic issue for the market. Many of the Court’s findings are specific to particular wordings, but a number of broad themes can be derived from the Judgment. Generally speaking, extensions providing cover for disease have been held to apply (with limited exceptions where the cover is specifically limited to local ‘events’ or ‘incidents’). Cover for denial of access extensions will depend on the specific wording, but generally cover will only apply for more limited local shutdowns – interestingly, this may result in cover potentially being available for ‘second wave’ local lockdowns even if not available for the nationwide ‘first wave’; Where trends clauses apply, the appropriate course is usually to compare the reduced turnover during the period of interruption against the turnover prior to the peril occurring – usually pre-COVID-19 but in some limited cases after COVID-19 had started to spread but prior to lockdown. Although found not to be applicable, the Court dismissed the Orient Express line of authority on causation – if upheld, that will mean that Insurers and Reinsurers will no longer be able to argue that localised ...

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