Biz Interruption Test Case Judgment Set For Sept. 15

By Martin Croucher
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Law360, London (September 10, 2020, 2:28 PM BST) -- A High Court test case on insurance linked to COVID-19 that could decide the financial future of 370,000 businesses forced to close during the national lockdown will end on Tuesday, when a judgment is expected to be handed down.

The Financial Conduct Authority said on Wednesday that judges Christopher Butcher and Julian Flaux will issue a ruling in the landmark case on Sept. 15.

The outcome of the FCA's test case against eight insurers could decide whether hundreds of thousands of companies forced to close during the government-ordered lockdown will be compensated under insurance  policies covering the costs of business interruption.

The trial, which took place under the financial markets test case scheme, turned a spotlight on so-called non-damage extensions in business interruption policies.

Such policies typically cover lost earnings if a company is prevented from operating because of physical damage to a premises. But many policies are sold with extensions that offer cover if trading is disrupted by other factors, such as an order to close made by a public authority because of an outbreak of an infectious disease.

The FCA picked 17 policies for the test case that it believed were representative of the market. Some of those had exclusions under which the cover is triggered only if there is an outbreak of an infectious disease within a defined geographical radius.

The case will probably turn on the legal principle of causation.

Insurers say that businesses would still have faced losses if there had been a pandemic but not a lockdown, because people would have stayed at home.

Because of that, insurers say, the order to close by a public authority was not the sole cause of the financial losses — the pandemic becomes the cause. Because the order to close by a public authority is the trigger for payouts on a policy, rather than the pandemic itself, insurers say they shouldn't have to pay.

But the FCA's lawyers say that the pandemic and the lockdown were not separate causes. They are indivisible: there couldn't be one without the other.

The City regulator entered into a so-called framework arrangement with insurers in May, before the trial started, which would allow either side to appeal the ruling. The agreement gives insurers and the FCA the opportunity to agree on a "leapfrog" appeal, directly to the Supreme Court.

The case is The Financial Conduct Authority v. Arch Insurance and others, case number FL-2020-000018, in the High Court of Justice of England and Wales.

--Editing by Ed Harris.

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